The Austrian Economics Wiki - User contributions [en]

Free banking

2011-05-11T10:47:18Z

Ddnixx: /* Advocates */

{{wikipedia text}}
'''Free banking''' refers to a monetary arrangement in which banks are subject to no special regulations beyond those applicable to most enterprises, and in which they also are free to issue their own paper currency (banknotes). In a free banking system, market forces control the supply of total quantity of banknotes and deposits that can be supported by any given stock of cash reserves, where such reserves consist either of a scarce commodity (such as gold) or of an artificially limited stock of "fiat" money issued by a central bank. In the strictest versions of free banking, however, there either is no role at all for a central bank, or the supply of central bank money is supposed to be permanently "frozen." There is, therefore, no agency capable of serving as a "lender of last resort" in the usually understood sense of the term. Nor is there any government insurance of banknotes or bank deposit accounts.

== Institutions of Free Banking ==
Free banking includes:
#Free entry of banking and fiduciary producers
#Freedom to issue [[banknotes]] (promissory notes issued by a bank payable to bearer on demand).
#Freedom to accept money on deposit to current account, and to pay and collect cheques for customers
#Freedom to borrow money on term deposit and other forms of secured and unsecured borrowing
#Freedom to lend money and otherwise invest the bank's assets
#Freedom to provide guarantees, documentary letters of credit, performance bonds and to incur other off balance sheet exposures.

[[Vera Smith]]'s classic definition of free banking is:

"A régime where note-issuing banks are allowed to set up in the same way as any other type of business enterprise, so long as they comply with the general company law. The requirement for their establishment is not special conditional authorization from a Government authority, but the ability to raise sufficient capital, and public confidence, to gain acceptance for their notes and ensure the profitability of the undertaking. Under such a system all banks would not only be allowed the same rights, but would also be subjected to the same responsibilities as other business enterprises. If they failed to meet their obligations they would be declared bankrupt and put into liquidation, and their assets used to meet the claims of their creditors, in which case the shareholders would lose the whole or part of their capital, and the penalty for failure would be paid, at least for the most part, by those responsible for the policy of the bank. . . . No bank would have the right to call on the Government or on any other institution for special help in time of need. No bank would be able to give its notes forced currency by declaring them to be legal tender for all payments. . . . A central bank, on the other hand, being founded with the aid either direct or indirect of the Government, is able to fall back on the Government for protection from the disagreeable consequences of its acts. The central bank, which cannot meet its obligations, is allowed to suspend payment . . . while its notes are given forced currency." (Smith, Vera. [1936] 1990. ''The Rationale of Central Banking and the Free Banking Alternative''. Minneapolis, Minn.: [[Liberty Fund]]., pp. 169–70)

== Characteristics of Free Banking ==
Free banking theorists consider that free banking is characterized by:{{Citation needed|date=July 2008}}
#[[Currency competition|Competitive issue]] of redeemable bearer currency instead of central bank notes monopoly. Historically this meant [[banknotes]] (promissory notes issued by a bank payable to bearer on demand) issued in the form of paper or metal tokens, but cryptography and modern communications technology mean that it can now take the form of electronic tokens, too.
#Mutual acceptance by banks of each other's notes at par{{Citation needed|date=May 2007}}, and indirect redemption of notes by banks through note exchanges.
#In the same way competitive provision of current account services, but cooperation, too, in clearing of inter-bank payments between such accounts through clearing houses and settlement banks.
#Development of short term credit markets to allow banks with [[excess reserves]] to [[Investment|invest]] them at interest, and banks in need of reserves to borrow funds short term.
#Development of, and bank investment in, marketable debt securities, providing investment opportunities that can be [[Liquidation|liquidated]] at short notice, and acting as collateral for short term inter-bank borrowing and lending.
#No government-enforced [[legal tender|legal tender laws]]; that is, no legally enforced monopoly currency. Everybody is free to accept or refuse a trade in the currency they choose. A government central bank can still exist and can issue currency but its currency can only be mandatory for Government-related payments, like taxes.
#No [[central bank]] enforced [[fractional reserve banking|fractional reserve]] ratio. Banks are free to vary their bank reserve ratio, or sell financial products with differing fractional reserves, and impose differing restrictions on withdrawal rules and adjust the [[interest rates]] offered on [[demand deposit|accounts]], and even offer the option of [[full reserve banking|full reserve banking services]].

==History==
The Free Banking movement got its modern start with [[The Denationalization of Money]], by [[Friedrich Hayek]], who advocated that national governments stop claiming a monopoly on the issuing of currency, and allow private issuers like banks to voluntarily compete to do so.

In the 1980s, this expanded into an increasingly elaborate theory of free market money and banking, with proponents [[Lawrence White]], [[George Selgin]], and [[Charles Timberlake]] increasingly centering their writing and research around the concept, either regarding modern theory and application, or researching the history of spontaneously free banking.

=== History of Free Banks===
Banking has been more regulated in some times and places than others, and some times and places it has hardly been regulated at all, giving some experiences of more or less free banking.
#[[Australia]]. In the late 19th century, banking in Australia was subject to little regulation. There were four large banks with over 100 branches each, that together had about half of the banking business, and [[Branch (banking)|branch banking]] and deposit banking were much more advanced than other more regulated countries such as the UK and USA. Banks accepted each other's notes at par. Interest margins were about 4% p.a. In the 1890s a [[Real estate bubble|land price crash]] caused the failure of many smaller banks and [[Building society|building societies]]. [[Bankruptcy]] legislation put in place at the time gave bank debtors generous terms they could restructure under, and most of the banks used this as a means to restructure their debts in their favor, even though they didn't really need to.
#[[Switzerland]].<ref>Briones, Ignacio and Hugh Rockoff. "Do Economists Reach a Conclusion on Free-Banking Episodes?", ''Econ Journal Watch'', Vol.2, No.2 (August 2005), pp.279-324.[http://econjwatch.org/issues/volume-2-issue-2-august-2005]</ref> In the 19th Century several [[Cantons of Switzerland|Swiss cantons]] [[Deregulation|deregulated]] banking, allowing free entry and issue of notes. Cantons retained jurisdiction over banking until the enactment of the Federal Banking Law of 1881. The centralisation of note issue reduced the problem of the existence of "a bewildering variety of notes of varying qualities ... at fluctuating exchange rates."<ref>[http://books.google.com/books?id=GGYTcGAG3VoC&pg=PA208&dq=free+banking+in+britain&lr=&sig=bKCluBzIxLjNWa71ONd5eZbsWr8#PPA211,M1 The Central Bank and the Financial System], Charles Albert Eric Goodhart, p. 211.</ref>
#[[Scotland|Scottish]] Free Banking.<ref>"Do Economists Reach a Conclusion on Free-Banking Episodes?". op. cit.</ref> This period lasted between 1716 and 1845. [[Bank of Scotland|The Bank of Scotland]], the original Scottish bank charter and [[Royal Bank of Scotland|The Royal Bank of Scotland]], chartered by [[England]], issued competitive currencies. This resulted in a "[[currency war]]" in 1727. The result was a cooperative equilibrium, where both banks agreed to accept rival banks' notes in the ordinary course of business. This area of study has been developed further by [[Lawrence H. White]] in his book ''Free Banking in Britain: Theory, Experience and Debate 1800-1845''<ref>Lawrence H. White, [http://www.amazon.com/dp/0255363753/ ''Free Banking in Britain: Theory, Experience and Debate 1800-1845''], London: [[Institute of Economic Affairs]], 1995, ISBN 0-255-36375-3.</ref> This example has been contested by [[Murray Rothbard]],<ref>[[Murray Rothbard|Rothbard, Murray]] [http://mises.org/journals/rae/pdf/RAE2_1_15.pdf The Myth of Free Banking in Scotland]</ref> resulting in a reply by White.<ref>George Selgin and Lawrence H. White, [http://mises.org/journals/rae/pdf/rae9_2_5.pdf In Defense of Fiduciary Media- or, We are Not Devo(lutionists) We are Miseasians], The Review of Austrian Economics, Vol. 9, No. 2, (1996):83-107 ISSN 0889-3047.</ref>
#[[United States]].<ref>Ibid</ref> Although the period from 1837 to 1864 in the U.S. is often referred to as the [[History of central banking in the United States#1837.E2.80.931862: Free Banking Era|Free Banking Era]], the term is something of a misnomer, for it refers not to a general system of "free" banking in the literal sense described previously, but rather to various state banking systems based on so-called "free banking" laws, which, though they made it unnecessary for new entrants to secure charters (each of which was subject to a vote by the state legislature), nonetheless restricted their undertakings in important ways. Most importantly, U.S. "free" banks were denied the right to establish branch networks, and had to "secure" their notes by purchasing and surrendering to state banking authorities certain securities those authorities deemed eligible for the purpose. The securities in many cases included bonds of the authorizing state governments themselves; and it has been determined that the depreciation of these very securities was the chief cause of "free bank" failures, and indeed of bank failures generally, during the period in question. The lack of branch banking, in turn, caused state-issued banknotes to be discounted at varying rates once they had traveled any considerable distance from their sources. In short, the shortcomings of banks and bank-supplied paper currency during the so-called "free banking era" in the U.S., far from establishing the need for special regulation of banks, testifies to the dangers of unwarranted or unwise regulation. Then, from 1863 to 1913, known as the [[History of central banking in the United States#1863–1913: National Banks|National Banks Era]], state-chartered banks were still operating under a free banking system. Some scholars have found that the system was mostly stable.<ref>[http://books.google.com/books?id=0uhyai9jSGgC Microeconomics of Banking], De Xavier Freixas, Jean-Charles Rochet, p. 261.</ref>
#[[Sweden]].<ref>"Do Economists Reach a Conclusion on Free-Banking Episodes?", op. cit.</ref> Sweden had two periods of free banking, 1830–60 and 1860-1902. Following a bank crisis in 1857, there was a rise in popular support for private banks and private money issuers (especially [[Stockholms Enskilda Bank]], founded in 1856). A new bank law was adopted by parliament in 1864, deregulating the [[interest rate]]. The following decades marked the height of the Swedish free banking era. After 1874, no new private banks were founded. In 1901, issuing of private money was prohibited. Work on the Swedish free banking era has been done by Per Hortlund and [[Erik Lakomaa]]. Erik Lakomaa (The Quarterly Journal of Austrian Economics, Summer 2007), has demonstrated that the Swedish experiment in free banking was successful. It reduced booms and busts. Only one bank went bankrupt for 70 years, an event related to fraud and not to excessive lending as has happened wherever central banking has been practiced.

There is speculation that with [[Electronic money|electronic currencies]] free banking can evolve into anonymous [[Online banking|internet banking]]. The implications of this for the monetary system are unknown, and much of the rigorous theory in this area has been abandoned for a "wait and see" attitude.

== Advocates ==
* [[Fred Foldvary]] <ref>[http://www.progress.org/2008/fold586.htm Free Banking Explained - ''The Progress Report'' November, 2008]</ref>
* [[David D. Friedman]] <ref>http://www.cato.org/pubs/pas/pa017.html</ref>
* [[Friedrich Hayek]]
* [[Richard Timberlake]]
* [[Pascal Salin]]
* [[George Selgin]] <ref>http://www.richmondfed.org/publications/research/region_focus/2009/winter/full_interview.cfm</ref>
* [[Lawrence H. White]]

== See also ==
* [[Henry Meulen]]
* [[Richard Salsman]]

== References ==
{{reflist}}
*Ebenstein, Alan. ''Friedrich Hayek: A Biography.'' University of Chicago Press, 2003. Print.
*Selgin, George. ''The Theory of Free Banking.'' Rowman & Littlefield Publishers, Inc., 1988. Print.
*White, Lawrence. ''Competition and Currency: Essays on Free Banking and Money.'' New York University Press, 1992. Print.

== External links ==
* [[Murray Rothbard|Rothbard, Murray]]. [http://mises.org/mysteryofbanking/mysteryofbanking.pdf The Mystery of Banking], [[Ludwig von Mises Institute]]. 2008.
* [[Murray Rothbard|Rothbard, Murray]]. [http://mises.org/journals/rae/pdf/RAE2_1_15.pdf The Myth of Free Banking in Scotland], [[Ludwig von Mises Institute]]. 2008.
*[http://www.cato.org/pubs/journal/cj7n3/cj7n3-5.pdf ''Automatic Stabilizing Mechanisms Under Free Banking'' (pdf)] by Kevin Dowd
* [http://www.the-portal.org/mutual_banking.htm ''Mutual Banking'' (1974 reprint of 1946 Modern Publishing edition)], [http://libertarian-labyrinth.org/greene/wbg-mb1850.html ''Mutual Banking'' (1850 edition)] by [[William Batchelder Greene]]
*[http://www.econlib.org/library/LFBooks/SmithV/smvRCBCover.html] Vera Smith's 1936 book, ''Rationale for Central Banking'']
* [http://www.reinventingmoney.com/ Reinventing Money]
* [http://www.econlib.org/library/Bagehot/bagLom.html Walter Bagehot: ''Lombard Street: A Description of the Money Market'' (1873) Library of Economics and Liberty]
* [http://www.econlib.org/library/Essays/hykKnw1.html Friedrich A. Hayek: "The Use of Knowledge in Society" (1945) Library of Economics and Liberty]
* [http://oll.libertyfund.org/index.php?option=com_staticxt&staticfile=show.php%3Ftitle=2307&Itemid=99999999 George A. Selgin, ''The Theory of Free Banking: Money Supply under Competitive Note Issue'' (1988) Library of Economics and Liberty]
* [http://www.cato.org/pubs/journal/cj7n3/cj7n3-5.pdf Kevin Dowd: ''Automatic Stabilizing Mechanisms Under Free Banking'' (pdf)]
* [https://docs.google.com/fileview?id=0B7sd7pHXOZmmOTY0ODMwYzktYWVhNy00YWQ4LTk5MjEtYTBlNzc3M2ViYzJh&hl=fr George Selgin and Lawrence White: "In Defence of Fiduciary Media or: We are not Devolutionists, we are Misesians!" ''The Review of Austrian Economics'', Vol. 9, N°2, 1996, 83-107]
* [[William Batchelder Greene]]: ''Mutual Banking'', [http://www.the-portal.org/mutual_banking.htm 1974 reprint of 1946 Modern Publishing edition], [http://libertarian-labyrinth.org/greene/wbg-mb1850.html 1850 edition]
* [http://www.econlib.org/library/LFBooks/SmithV/smvRCBCover.html Vera Smith: ''The Rationale of Central Banking'' (1936) Library of Economics and Liberty]
* [[Murray Rothbard|Rothbard, Murray]]. [http://mises.org/mysteryofbanking/mysteryofbanking.pdf ''The Mystery of Banking''], [[Ludwig von Mises Institute|Ludwig von Mises Institute, 2008]]
* [[Murray Rothbard|Rothbard, Murray]]. [http://mises.org/journals/rae/pdf/RAE2_1_15.pdf The Myth of Free Banking in Scotland], [[Ludwig von Mises Institute]]. 2008.
* [http://www.thefreelibrary.com/Rothbard+on+fractional+reserve+banking%3a+a+critique.%28Report%29-a0221917188 Michael S. Rozeff: "Rothbard on fractional reserve banking - a critique." ''Independent Review', March 22, 2010]

{{DEFAULTSORT:Free Banking}}
[[Category:Banking]]
[[Category:Banking terms and equipment]]
[[Category:Anarchist theory]]
[[Category:Libertarian theory]]
[[Category:Monetary reform]]

FRB

2011-05-11T10:46:00Z

Ddnixx: Redirected page to Fractional reserve banking

#REDIRECT [[Fractional reserve banking]]

QJAE

2011-04-29T02:48:48Z

Ddnixx: Redirected page to Quarterly Journal of Austrian Economics

#REDIRECT [[Quarterly Journal of Austrian Economics]]

Talk:Free banking

2011-04-26T05:11:06Z

Ddnixx: Created page with "Huerta de Soto advocating free banking? ~~~~"

Huerta de Soto [[Free_banking#Advocates| advocating]] free banking? [[User:Ddnixx|Ddnixx]] 09:11, 26 April 2011 (MSD)

User talk:Forgottenman

2011-02-03T15:57:46Z

Ddnixx: /* Mike Shedlock vanity? */

{{User:Forgottenbot/archive
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|archive = User talk:Forgottenman/Archive/%(year)d/%(monthname)s
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<div style="text-align:center; font-size:larger;">'''This is my talk page'''. Click the "New section" tab ("+") above to start a new topic, or simply <span class="plainlinks">[http://wiki.mises.org/mediawiki/index.php?title=User_talk:Forgottenman&action=edit&section=new click here]</span>. <br />Sign your name with <nowiki>~~~~</nowiki> when you're finished, and click "Save page." Thanks!</div>

== Extensions and interwiki links ==

A few questions:
# What Wikimedia extensions are installed here?
# What types of interwiki links are available for external wiki-linking? [[User:Mcornelius|Mcornelius]] 03:59, 12 November 2010 (CST)
:The extensions we have right now can be seen at [[Special:Version]]: we have categorytree, charinsert, parserfunctions, and cite. If we need more, however, we can ask our developers to install them.
:As far as interwiki links go, it looks like we can use the full names of Wikimedia wikis, but not shortcuts. So, [[wikipedia:Ludwig von Mises]] or [[wiktionary:praxeology]]. For Wikisource, we have to specify the language: [[wikisource:en:The Law]]. --[[User:Forgottenman|Forgottenman]] ([[User talk:Forgottenman|talk]]) 06:49, 12 November 2010 (CST)

==Rights==
Seems like your rights issue is solved --[[User:Jatucker|Jatucker]] 12:16, 12 November 2010 (CST)
:What do you mean? --[[User:Forgottenman|Forgottenman]] ([[User talk:Forgottenman|talk]]) 12:24, 12 November 2010 (CST)
::I thought your permissions were somehow limited but I see that they are not --[[User:Jatucker|Jatucker]] 16:09, 12 November 2010 (CST)
:::No, you gave me "bureaucrat" status, which is pretty much the highest available without being a developer. --[[User:Forgottenman|Forgottenman]] ([[User talk:Forgottenman|talk]]) 18:57, 12 November 2010 (CST)

== Missing Templates ==

Impressive work on all the background mechanisms, Forgottenman! May I request a few more templates for citing resources, that seem to be necessary for the many articles and parts imported from Wikipedia (e.g. [[Austrian School|here]])? [[User:Pestergaines|Pestergaines]] 08:25, 16 November 2010 (CST)
:I'll have a look; they would be useful. Hopefully though their existence doesn't encourage more copy / pastes from Wikipedia... we have the opportunity to create articles that have much more detail and a less restrictive license, but if we start with WP text, our article is a derivative work of WP forever. --[[User:Forgottenman|Forgottenman]] ([[User talk:Forgottenman|talk]]) 08:42, 16 November 2010 (CST)
::Well, we can always start from scratch if needed. :)
::Oh, and: big thanks for help with the BookSources! It's a small detail, but very useful when needed! [[User:Pestergaines|Pestergaines]] 14:41, 16 November 2010 (CST)
:::I'm thinking that starting from scratch may be a good idea. I'm not convinced that converting everything into metadata is really that useful. I'll start by adapting Wikiqoute's model of cite journal and we can go from there. --[[User:Forgottenman|Forgottenman]] ([[User talk:Forgottenman|talk]]) 14:54, 16 November 2010 (CST)

[http://wiki.mises.org/wiki/Full_reserve_banking#cite_note-5 Full reserve banking] has also some template error, as in [[Criticism of fractional reserve banking|this]]; and a video template is required [[Peter Schiff|here]]. That is hopefully all!

On a different topic - do you think it would make sense to start organizing projects in this wiki, or is that premature? [[User:Pestergaines|Pestergaines]] 06:15, 17 November 2010 (CST)
:I'll try to take a look at those templates later today. Are you talking about Wikiprojects? Setting them up is probably best done by someone interested in the subject and not for its own sake – so I wouldn't suggest creating a wide variety of projects, but if there's a particular subject or type of article that interests you, go for it. Active projects can be great ways for people to get involved; abandoned projects make the place look like a big empty building. --[[User:Forgottenman|Forgottenman]] ([[User talk:Forgottenman|talk]]) 09:40, 17 November 2010 (CST)
::I've created the [[MisesWiki:WikiProject Economic History]], although the name seems a little unwieldy. Before I start creating more pages, do you think the name and (category) is appropriate, or could we shorten WikiProject to Project? [[User:Pestergaines|Pestergaines]] 05:51, 20 November 2010 (CST)
:::Sounds fine to me. --[[User:Forgottenman|Forgottenman]] ([[User talk:Forgottenman|talk]]) 09:32, 22 November 2010 (CST)

Would it be possible to get some CSS added to [[MediaWiki:Common.css]] to fix the formatting on [[Template:Header]]? I would do it myself but I don't have the required permissions. [[User:Anarchei|Anarchei]] 01:43, 29 November 2010 (CST)

==Innovation and original work.==
I've already logged in and made a very small edit to the mises wiki: pollution. I'm trained in sustainable development and pollution related problems and solutions. All I've done is add the word '''soil''' pollution to the list. Its often overlooked but it is useful because it illustrates the property rights, disclosure aspect, knowledge issues and the issue of people going to the hazard.

My question is not about pollution, its about charity and new tools like [http://www.thepoint.com/ The Point], hopefully you know of that because of Bob Murphy's challenge to Krugman.
Both need to be covered but in many cases the ideas of using charitable solutions are very new, particularly using the pledge based strategy in the Point, would they be considered original work?
Charity is critical because we often argue that charity can pick up some key externalities or public goods; particularly welfare. However charities are very restricted, often because they compete with government as a solution, [ Marx saw them as the major threat to socialism and Lenin wiped out church based charities in the first months ]. They have cash flow problems often because they are "not for profit" and this restricts their investment and banking options and because of donor fatigue and recipient privacy constraints. There's much stuff on this in the writings but its blurred a bit by Ayn Rand's opposition to religion and charity. [Yes I know she's not an Austrian school but most don't know that.] How do we deal with the newest solutions.
I've done some work in this field: [http://appliedimpossibilies.blogspot.com/2010/07/saving-world-by-burying-greens.html Saving the world by burying greens.]
The catch is that in a wiki sense this is classic ''"original work"'' but there are so few of us this could become a largish problem. What's plan A when your the only Austrian school player writing in a given field?
[[User:Wesleybruce|Wesleybruce]] 00:07, 17 November 2010 (CST)

:There are writings around on pretty much any topic, but sometimes one needs to pick and choose a little. A Stub for [[Charity]] was created with a few links that could be of use - perhaps that could help out? [[User:Pestergaines|Pestergaines]] 05:39, 17 November 2010 (CST)
:Regarding "original work," I wouldn't worry about it too much. I doubt that we are going to be as hardheaded about that as Wikipedia is in articles on "new" subjects. The preferred approach might be to build articles based on current work, with references, and then branch off based on that. Thus, Hayek said xyz about charity (he didn't think it had much hope of solving the problem), but his paradigm didn't include new charity options. Or Walter Block and Murry Rothbard say xyz about pollution, but other areas that haven't been looked into are ___.
:You might also get in touch with Stephan Kinsella; he runs Libertarian Papers and if you put something together he might be inclined to have it reviewed and published, especially in a new area like this. That way we'd end up with a published, reliable article to cite. --[[User:Forgottenman|Forgottenman]] ([[User talk:Forgottenman|talk]]) 07:10, 17 November 2010 (CST)

==Mises Bust for Meritorious Editing==
{| style="border: 1px solid {{{border|gray}}}; background-color: {{{color|#fdffe7}}};"
|rowspan="2" valign="middle" | [[Image:MisesBust.jpg|100px]]
|rowspan="2" |
|style="font-size: x-large; padding: 0; vertical-align: middle; height: 1.1em;" | '''Mises Bust for Meritorious Editing'''
|-
|style="vertical-align: middle; border-top: 1px solid gray;" | For his numerous and highly clueful edits in the early days of the Mises Wiki, I hereby present this Mises Bust to Forgottenman. [[User:DickClarkMises|DickClarkMises]] 13:18, 19 November 2010 (CST)
|}
:That put a smile on my face. Just awesome; thanks. --[[User:Forgottenman|Forgottenman]] ([[User talk:Forgottenman|talk]]) 13:20, 19 November 2010 (CST)

== The 'Anniversaries' project ==

Hey, Forgot, a question: With all the unfinished anniversary pages, might you be able to create a little "Project Page" (like the "Economic History" project) that gives us a few guidelines about what to put where? I was wondering because the anniversary dates show up as top-ranked in the [[Special:WantedPages|Most wanted pages]] list and it might be helpful for us folks to know how to add things. Thanks in advance! -- [[User:RayBirks|RayBirks]] 14:32, 27 November 2010 (CST)
:I've added instructions to [[MisesWiki:Anniversaries]]. --[[User:Forgottenman|Forgottenman]] ([[User talk:Forgottenman|talk]]) 16:04, 27 November 2010 (CST)
::Yes, noticed almost right away. Thanks! -- [[User:RayBirks|RayBirks]] 18:16, 27 November 2010 (CST) Wondering now about:

==The concept of "Projects"==
Our only official "project" to date is the [[MisesWiki:WikiProject Economic History|Economic history project]]. Do these four pages qualify as "projects" worthy of the category "WikiProjects" ?

:* [[MisesWiki:Meetups|Meetups]]
:* [[MisesWiki:Anniversaries|Anniversaries]]
:* [[MisesWiki:Current events|Current events]]
:* [[MisesWiki:Community portal|Community portal]]

They all have "project page" as their first tab, yet I don't see any code inside the Economic History project page that makes it unique to be a special project. Seems these four may also be special cases needing focus, building, expansion, explanations, etc. Am not pushing hard for these necessarily. I am just looking to see if these deserve the designation. Thanks for your thoughts as time permits. Maybe we can discuss this in our soon-to-be-developed forum! :) If this is too much for your talk page, I could move to the Google mailing list, if you like. -- [[User:RayBirks|RayBirks]] 18:16, 27 November 2010 (CST)
:On Wikipedia at least the Wikiprojects are primarily for content creation or specific maintenance tasks. My preference would be to continue in that tradition; the other pages you mention seem different from that. "Anniversaries" would be closest, I think, to being an actual Wikiproject, but the thing is that it really isn't a project that will need a lot of maintenance once it is set up (though that will take at least several months). I'd say put it on the Community portal to draw attention to it, but I wouldn't call it a wikiproject. --[[User:Forgottenman|Forgottenman]] ([[User talk:Forgottenman|talk]]) 19:55, 27 November 2010 (CST)
::'k. -- [[User:RayBirks|RayBirks]] 21:03, 27 November 2010 (CST)

== Placement of stub tags ==

The stubs category page had suggested including the tag at either the beginning or the end of the article. As I see you moving them to the end of various pages, shall we change the instruction as well? Thanks for all your good works. -- [[User:RayBirks|RayBirks]] 11:09, 29 November 2010 (CST)
:Thanks, I didn't realize it said that. If anyone disagrees with my edit comment in my edit to [[:Category:Article stubs|that page]], I'm happy to discuss it. --[[User:Forgottenman|Forgottenman]] ([[User talk:Forgottenman|talk]]) 11:19, 29 November 2010 (CST)

== idioms ==

Hello
Can i write in spanish my contributions, changes and wikis?

thanks. {{unsigned|09:15, 3 January 2011|Arenas}}
:Hola Arenas: Es posible que vaya a ser un Mises Wiki en español en el futuro, si hay interés. Pero en este momento hay solamente un Mises Wiki en inglés. Si quieres contribuir, sugiero que agregues contribuciones en español en las páginas de "Talk," y yo puedo traducirlas y añadir el texto al artículo. Por ejémplo, si quieres crear un artículo llamado [[Vicente Fox]], añadir tu contribución en [[Talk:Vicente Fox]] y avísame. Dime si tienes otras preguntas; ayudarte es un placer.
:Hi Arenas: It's possible that in the future there will be a Mises Wiki in Spanish, if there's enough interest. But for now there is only a Mises Wiki in English. If you would like to contribute, I suggest that you add Spanish text to Talk pages, and I can translate them and add the text to the article. For example, if you want to create an article called [[Vicente Fox]], add your text to [[Talk:Vicente Fox]] and let me know. If you have other questions let me know; I'm glad to help. --[[User:Forgottenman|Forgottenman]] ([[User talk:Forgottenman|talk]]) 09:40, 3 January 2011 (CST)

== Don't remove ==

See http://wiki.mises.org/wiki/MisesWiki:Commons#Most_wanted_Stub. --[[User:Reserved|Reserved]] 12:26, 6 January 2011 (CST)
:Ah, if that's what you're referring to then let's create a page and link to it. Putting a red link on a page meant to guide new folks is counterintuitive. --[[User:Forgottenman|Forgottenman]] ([[User talk:Forgottenman|talk]]) 12:35, 6 January 2011 (CST)
:: Is only an open idea. When you think, it's practicable, then create it, please. --[[User:Reserved|Reserved]] 12:38, 6 January 2011 (CST)
:::I rather doubt it's practicable, but others think so, so I've put it at [[MisesWiki:Most wanted]]. --[[User:Forgottenman|Forgottenman]] ([[User talk:Forgottenman|talk]]) 12:55, 6 January 2011 (CST)
:::: I don't know, too. But a test is no risk. --[[User:Reserved|Reserved]] 13:21, 6 January 2011 (CST)

== Template ==

I see from above you are the goto guy for requesting templates :) Might I ask for the <nowiki>'''{{reflist|2}}'''</nowiki> one to be activated? It will allow for a far tidier article layout. Thanks [[User:Mark|Mark]] 14:00, 7 January 2011 (CST)
:I just worked on it a bit but it doesn't appear to be working yet; I'll need to do more research to figure it out. --[[User:Forgottenman|Forgottenman]] ([[User talk:Forgottenman|talk]]) 14:20, 7 January 2011 (CST)
::Thank you very much :) [[User:Mark|Mark]] 14:25, 7 January 2011 (CST)
Thank you for doing the reflist|2 template, I have another request, would it be possible to get the <nowiki>{{refbegin|2}} and {{refend))</nowiki> done also? <span style="font-size:smaller;">—''unsigned comment by'' [[User:Mark|Mark]] ([[User talk:Mark|talk]]) {{#if:Mark|11:42, 11 January 2011}}.</span>
:I've set up the framework, but I'm not familiar with these templates and so I don't know if they are working right now or not. I'll research them later and see what I can find, and write some documentation as well. --[[User:Forgottenman|Forgottenman]] ([[User talk:Forgottenman|talk]]) 11:08, 11 January 2011 (CST)
::Thanks. I have tried it out here [[Fighting Communist Organizations]] if you look t othe article`s end you will see that any section below the templates (In this case further reading) appears to get squished up? [[User:Mark|Mark]] 11:19, 11 January 2011 (CST)
::Thank you for setting up the template, there is one further issue with it however, '''</dl>''' is showing at the end of the references section? Any idea as to why? [[User:Mark|Mark]] 10:44, 28 January 2011 (CST)
:::Odd. Somehow on Wikipedia that dangling <code><nowiki></dl></nowiki></code> is hidden. Those five characters are only needed if {{tl|refbegin}} uses the "indent" parameter, so I've made them hide unless {{tl|refend}} also uses the indent parameter. --[[User:Forgottenman|Forgottenman]] ([[User talk:Forgottenman|talk]]) 11:14, 28 January 2011 (CST)
::::Excellent, thank you. [[User:Mark|Mark]] 13:41, 28 January 2011 (CST)

== About ==

Well edit, but you don't need to make a bow to one person. Tucker said it, I copied it.

The hope that this wiki can eventually come to replace major sections of mises org, is also from him. --[[User:Reserved|Reserved]] 11:15, 11 January 2011 (CST)
:You are the one who introduced the language that the Mises Institute "rules" this wiki; my edit provided support for that claim. --[[User:Forgottenman|Forgottenman]] ([[User talk:Forgottenman|talk]]) 11:33, 11 January 2011 (CST)
:: My language is influenced by my troublesomeness to think in English as German. Mr. Tucker may edit this article himself to advance the site (without to quote himself). We are no footmen. --[[User:Reserved|Reserved]] 11:50, 11 January 2011 (CST)

== More on sub-categories ==

I have created a new sub-category of "History of the Soviet Union". When you have a moment, please take a look to see if it is set up properly. You can find it by way of [[Felix Dzerzhinsky]]. Thx. :) -- [[User:RayBirks|RayBirks]] 19:54, 28 January 2011 (CST)

== Renaming a page via 'Move' ==

When offline I recalled the "move" concept. Found the short explanation in the [[Help:Wiki FAQ#Fixing wiki mistakes|'Help' FAQ]]. Have never 'moved' a page before, that I can recall. Would that have worked recently on the original misnaming of the ''History of the Soviet Union'' category as well? I am guessing all live links to the moving page are automatically changed as well, yes? TIA. -- [[User:RayBirks|RayBirks]] 13:54, 30 January 2011 (CST)
:Unfortunately no, categories can't be "moved" like articles can. To rename a category, we have to create a category with the new name, manually move all pages in the old category to the new category, and delete the old category. Right now we don't have many categories with a lot of articles in them, so this is an easy process. In the future, we can use a bot to make the change easier to complete. Regarding [[:Category:History of the Soviet Union]], you did it correctly: put {{tl|delete}} on the category with the wrong name, so that an admin would know to delete it. --[[User:Forgottenman|Forgottenman]] ([[User talk:Forgottenman|talk]]) 14:22, 30 January 2011 (CST)

== Mike Shedlock vanity? ==

[[Mike Shedlock]] Is an article about a person sourced entirely to that persons blog suitable for this wiki? It seems to be just a vanity piece to me. [[User:Mark|Mark]] 10:25, 2 February 2011 (CST)
:I think it's okay: the guy seems to be a fairly established writer (even writing occasionally for mises.org). So while yes it would be nice to get better sources, I'm not uncomfortable with letting it stay until then. --[[User:Forgottenman|Forgottenman]] ([[User talk:Forgottenman|talk]]) 06:45, 3 February 2011 (CST)
:Added some more links to make it a little more balanced (Murphy/Faber criticism of Mish). Some are Mises links, which look kind of weird under ''external'' links. Is there a special convention for Mises links? [[User:Daniel Hewitt|Daniel Hewitt]] 08:34, 3 February 2011 (CST)
::Our "convention" is to just call that section "Links" rather than "External links," and put mises.org links there as well. --[[User:Forgottenman|Forgottenman]] ([[User talk:Forgottenman|talk]]) 08:43, 3 February 2011 (CST)
:I think his blog is suitable for citing his political opinions, and I'm sure there will be other sources when the article grows. I'll keep this in mind if I ever extend the article. And, yes, he is pretty established; he has 40k+ readers according to Feedburner, has appeared on shows like Yahoo's Tech Ticker and his blog is listed as #2 at EconDirectory's [http://www.econdirectory.com list] of popular economics blogs/websites. BTW: mises.org links ARE external links (but I'll use the new convention from now) [[User:Ddnixx|Ddnixx]] 09:57, 3 February 2011 (CST)

Mike Shedlock

2011-02-01T21:29:11Z

Ddnixx:

'''Mike "Mish" Shedlock''' is an American investment advisor and financial commentator. He operates the blog ''[http://globaleconomicanalysis.blogspot.com MISH'S Global Economic Trend Analysis]'' and believes in the [[Austrian School|Austrian School of economics]].<ref>[http://globaleconomicanalysis.blogspot.com/2008/06/about-mike-mish-shedlock.html About Mike "Mish" Shedlock], retrieved February 1, 2011</ref><ref>[http://globaleconomicanalysis.blogspot.com/2008/04/deflation-in-fiat-regime.html Deflation In A Fiat Regime?], April 22, 2008, retrieved February 1, 2011</ref>

Shedlock is an avid supporter of [[Ron Paul]] and other [[Libertarianism|libertarian-leaning]] political candidates.<ref>[http://globaleconomicanalysis.blogspot.com/2010/10/gold-market-on-us-elections-so-what.html Gold Market on U.S. Elections: So What?], October 14, 2010, retrieved February 1, 2011</ref> He sides with [[Murray Rothbard]] and believes fractional reserve lending is inherently fraudulent, concluding that "[t]he case is irrefutable."<ref>[http://globaleconomicanalysis.blogspot.com/2009/10/fractional-reserve-lending-constitutes.html Fractional Reserve Lending Constitutes Fraud], October 5, 2009, retrieved February 1, 2011</ref>

On July 10, 2007 Shedlock called the top of the stock market suggesting that "the current trend is exhausted"<ref>[http://globaleconomicanalysis.blogspot.com/2007/07/quotes-of-day-top-call.html Quotes of the Day / Top Call], July 10, 2007, retrieved February 1, 2011</ref>, missing the actual top by 3%.

==External links==
* [http://globaleconomicanalysis.blogspot.com Mike Shedlock's blog ''Global Economic Trend Analysis'']

==References==
{{Reflist}}
<references/>

Mike Shedlock

2011-02-01T21:21:49Z

Ddnixx:

'''Mike "Mish" Shedlock''' is an American investment advisor and financial commentator. He operates the blog ''[http://globaleconomicanalysis.blogspot.com MISH'S Global Economic Trend Analysis]'' and believes in the [[Austrian School|Austrian School of economics]].<ref>[http://globaleconomicanalysis.blogspot.com/2008/06/about-mike-mish-shedlock.html About Mike "Mish" Shedlock], retrieved February 1, 2011</ref><ref>[http://globaleconomicanalysis.blogspot.com/2008/04/deflation-in-fiat-regime.html Deflation In A Fiat Regime?], April 22, 2008, retrieved February 1, 2011</ref>

Shedlock is an avid supporter of [[Ron Paul]] and other [[Libertarianism|libertarian-leaning]] political candidates.<ref>[http://globaleconomicanalysis.blogspot.com/2010/10/gold-market-on-us-elections-so-what.html Gold Market on U.S. Elections: So What?], October 14, 2010, retrieved February 1, 2011</ref> He sides with [[Murray Rothbard]] and believes fractional reserve lending is inherently fraudulent, concluding that "[t]he case is irrefutable."<ref>[http://globaleconomicanalysis.blogspot.com/2009/10/fractional-reserve-lending-constitutes.html Fractional Reserve Lending Constitutes Fraud], October 5, 2009, retrieved February 1, 2011</ref>

On July 10, 2007 Shedlock called the top of the stock market suggesting that "the current trend is exhausted".<ref>[http://globaleconomicanalysis.blogspot.com/2007/07/quotes-of-day-top-call.html Quotes of the Day / Top Call], July 10, 2007, retrieved February 1, 2011</ref>

==External links==
* [http://globaleconomicanalysis.blogspot.com Mike Shedlock's blog ''Global Economic Trend Analysis'']

==References==
{{Reflist}}
<references/>

Mike Shedlock

2011-02-01T20:22:29Z

Ddnixx: Created page with "'''Mike "Mish" Shedlock''' is an American investment advisor and financial commentator. He operates the blog ''[http://globaleconomicanalysis.blogspot.com MISH'S Global Economic ..."

Criticism of fractional reserve banking

2011-02-01T20:07:15Z

Ddnixx: /* Other economic and political criticisms */

{{main|Fractional-reserve banking}}
{{wikipedia text}}
'''Criticisms of [[fractional reserve banking]]''' have been put forward from a variety of perspectives. Critics have included economists such as [[Irving Fisher]],<ref>''100% Money'', Irving Fisher</ref> and [[Milton Friedman]].<ref>Friedman, M., A Program for Monetary Stability, New York, Fordham University Press, 1960, pp. 65</ref><ref>[http://mises.org/daily/3108 The Social Imperative of Sound Money], Lew Rockwell: "I find it sickening that there are so few voices outside the [[Austrian School]] that will stand up to this policy (of [[fiat money]]/[[fractional reserve banking]]/[[central bank]]ing)".</ref> Within the economics profession, most criticisms are from the [[Austrian School]].<ref>[http://mises.org/media/4014 The Economics of Legal Tender Laws], [[Jorg Guido Hulsmann]] (includes detailed commentary on [[fractional reserve banking|FRB]])</ref><ref>[http://mises.org/store/Money-Bank-Credit-and-Economic-Cycles-P290C0.aspx Money, Bank Credit and Economic Cycles], Jesus Huerta de Soto, Mises Institute ISBN: 978-1-933550-39-8</ref><ref>[http://mises.org/store/Meltdown-P557.aspx ''Meltdown''], Tom Woods, Regnery Press ISBN: 9781596985872</ref><ref>[http://www.marketoracle.co.uk/Article25212.html The Faults of FRB], Thorsten Polleit</ref> There are also critics from outside the economics profession who advocate [[monetary reform]].<ref>[http://www.nakedcapitalism.com/2010/12/matt-stoller-end-this-fed.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+NakedCapitalism+%28naked+capitalism%29 End This Fed], Matt Stoller</ref><ref>For an example of the writings of these groups, see [http://www.bilderberg.org/monref.htm this] contribution from Bilderberg.org</ref><ref>[http://www.youtube.com/watch?v=VMngK0t5WkY Max Keiser]</ref>

==Terminology==

Critics of fractional reserve banking and the related fiat paper monetary system may refer to it by the term '''debt-based monetary system''',<ref>[http://mises.org/daily/4631 Is Our Money Based On Debt?], Robert Murphy</ref><ref name="speech">For an example of the public use of the term, see the [http://www.prosperityuk.com/prosperity/articles/earl.html speech] of the Earl of Caithness in the House of Lords on 5 March 1997</ref> or '''credit-based monetary system'''.<ref>For example of the public use of the term, see this speech given by [[Zhou Xiaochuan]], [http://www.bis.org/review/r090402c.pdf Reform the monetary system], 23 March 2009 (BIS), and this article, [http://www.nakedcapitalism.com/2009/02/steve-keen-roving-cavaliers-of-credit.html ''Roving Cavaliers of Credit''] by Steve Keen (with commentary by Yves Smith)</ref><ref>[http://globaleconomicanalysis.blogspot.com/2010/09/myths-about-whats-economically.html Myths], MISH</ref><ref>[http://globaleconomicanalysis.blogspot.com/2010/07/are-we-trending-towards-deflation-or-in.html Deflation], MISH</ref>

The term, "debt-based monetary system," and related terms, such as "debt money" are not used by conventional economists or academic [[mainstream economics|mainstream economists]]. Mainstream economists often refer to "debt money" simply as [[Credit (finance)|credit]], and distinguish between types of money only after the money is created. The mainstream generally do not discuss or comment on the fact that virtually all money is now created through individuals, or businesses, or governments going into debt to government-sponsored commercial banks.<ref>For an example of the mainstream use of the term "credit" instead of "debt-money" see [http://www.ft.com/cms/s/bdfa429e-17a2-11dd-b98a-0000779fd2ac,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2Fbdfa429e-17a2-11dd-b98a-0000779fd2ac.html&_i_referer=http%3A%2F%2Fwww.ft.com%2Fhome%2Fasia this] example from the Financial Times, 1 May 2008</ref> The subject of debt-based money (as distinct from traditional monetary policy) is absent from most established mainstream academic economic publications.<ref>Paul Krugman, writing at Slate.com, says the Austrian theory of business cycles is "about as worthy of serious study as the phlogiston theory of fire". http://www.slate.com/id/9593</ref>

== Typical criticisms ==

Norm Franz states in his ''Money and Wealth in the New Millennium'':<ref>[http://www.amazon.com/Money-Wealth-Millennium-Norm-Franz/dp/0971086303 ''Money and Wealth in the New Millennium''], Norm Franz</ref>

{{quote|Gold is the money of kings, silver is the money of gentlemen, barter is the money of peasants – but debt is the money of slaves.}}

Robert H. Hemphill, credit manager of the Federal Reserve in Atlanta, stated in 1939:<ref>Preface to ''100% Money'', Irving Fisher</ref>

{{quote|If all the bank loans were paid, no one would have a bank deposit and there would not be a dollar of coin or currency in circulation. This is a staggering thought. Someone has to borrow every dollar we have in circulation, cash or credit. If the banks create ample synthetic money we are prosperous; if not, we starve. When one gets a complete grasp of the picture the tragic absurdity of our hopeless position is almost incredible, but there it is. It (the banking problem) is the most important subject intelligent persons can investigate and reflect upon. It is so important that our present civilization may collapse unless it becomes widely understood and the defects remedied very soon.}}

Ron Paul states in his book ''End the Fed'':<ref>[http://mises.org/daily/3687 ''End the Fed''], Ron Paul</ref>

{{quote|American presidents actually worked to implement and defend the gold standard, which put a brake on the ability of the largest banks to expand credit without limit. The gold standard worked like a regulator in this way. Ultimately, banks had to function like every other business. They could expand and make risky loans up to a point, but when faced with bankruptcy, they had nowhere they could turn. They would have to contract loans and deal with extreme financial pressures. Risk bearing is a wonderful mechanism for regulating human decision making. This created a culture of lending discipline.

In the jargon of the day, the system lacked "elasticity." That's another way of saying that banks couldn't expand money and credit as much as they wanted. They couldn't inflate without limit and count on a centralized institution to bail them out...

The banking industry has always had trouble with the idea of a free market that provides opportunities for both profits and losses. The first part, the industry likes. The second part is another issue. That is the reason for the constant drive in American history towards the centralization of money and banking, a trend that not only benefits the largest banks with the most to lose from a sound money system, but also the government, which is able to use an elastic system as an alternative form of revenue support. The coalition of government and big bankers provides the essential backbone of support for the centralization of money and credit...

Consider the Soviet case: to my knowledge, no business ever went under with the Soviet system but society in general grew ever poorer. Think of that Soviet system applied to the banking industry and you have the Fed.}}

In the foreward to ''Fiat Money Inflation in France'', Mr John McKay wrote the following:<ref>[http://mises.org/books/inflationinfrance.pdf ''Fiat Money Inflation in France''], Andrew Dickson White, 1912</ref>

{{quote|The story of "Fiat Money Inflation in France" is one of great interest to legislators, to economic students, and to all business and thinking men. It records the most gigantic attempt ever made in the history of the world by a government to create an inconvertible paper currency, and to maintain its circulation at various levels of value. It also records what is perhaps the greatest of all governmental efforts—with the possible exception of Diocletian's—to enact and enforce a legal limit of commodity prices. Every fetter that could hinder the will or thwart the wisdom of democracy had been shattered, and in consequence every device and expedient that untrammelled power and unrepressed optimism could conceive were brought to bear.

But the attempts failed. They left behind them a legacy of moral and material desolation and woe, from which one of the most intellectual and spirited races of Europe has suffered for a century and a quarter, and will continue to suffer until the end of time. There are limitations to the powers of governments and of peoples that inhere in the constitution of things, and that neither despotisms nor democracies can overcome.

Legislatures are as powerless to abrogate moral and economic laws as they are to abrogate physical laws. They cannot convert wrong into right nor divorce effect from cause, either by parliamentary majorities, or by unity of supporting public opinion. The penalties of such legislative folly will always be exacted by inexorable time. While these propositions may be regarded as mere commonplaces, and while they are acknowledged in a general way, they are in effect denied by many of the legislative experiments and the
tendencies of public opinion of the present day. The story, therefore, of the colossal folly of France in the closing part of the eighteenth century and its terrible fruits, is full of instruction for all men who think upon the problems of our own time.}}

C.J. Maloney wrote of the desperation of Henry VIII of England to counterfeit gold by engaging charlatan-alchemists:<ref>[http://www.lewrockwell.com/maloney/maloney28.1.html The Desperation of King Henry VIII], C.J. Maloney</ref>

{{quote|Despite his formidable education and great historic reputation, the disastrous interventions into the economy, the lifelong dishonesty with the currency in his care and, most of all, his laughable attempts to bring a sorcerer into his court to conjure gold, mark the great King Henry VIII as a fool. Yet there is no reason, be warned, for anyone to feel superior to the King; one only needs to pick up a newspaper to see that though alchemy may be a dead science, it has merely taken up new forms.

This has always been and always will be, for its immortality is powered by economic man’s most dangerous, fondest wish, the one that will drive us to endless imbecilities and repeated destruction – the ardent desire to believe that you can get something for nothing. His adherence to that belief made King Henry VIII a man of his times – and ours.}}

Certain [[monetary reform]]ers claim that a fiat money/fractional-reserve based banking system is inherently destructive and inevitably generates [[inflation|debasement of the currency]], [[debt slavery|extreme inequality]] or [[Austrian Business Cycle Theory|periodic crises]].<ref>[http://www.marketoracle.co.uk/Article25212.html The Faults of FRB], Thorsten Polleit</ref><ref>[http://mises.org/daily/3687 ''End the Fed''], Ron Paul</ref><ref>[http://mises.org/store/Money-Bank-Credit-and-Economic-Cycles-P290C0.aspx Money, Bank Credit and Economic Cycles], Jesus Huerta de Soto, Mises Institute ISBN: 978-1-933550-39-8</ref><ref>[http://www.mises.org/Books/mysteryofbanking.pdf Murray Rothbard, ''The Mystery of Banking'']</ref><ref name="books.google.com">{{cite book |last= Brown |first= Ellen H. |title= Web of Debt |url= http://books.google.com/books?id=ILMGrEC524UC |accessdate= 2007-12-15 |year= 2007 |publisher= Engdahl Publishing|isbn= 0979560802 }}</ref><ref name="death"/><ref name="monetary.org">[http://www.monetary.org/lostscienceofmoney.html Stephen A. Zarlenga, ''The Lost Science of Money'' AMI (2002)]</ref><ref>[http://mises.org/story/3108 Sound Money], Lew Rockwell</ref><ref>[http://mises.org/story/1971 Our Money Madness], Lew Rockwell</ref><ref>[http://mises.org/rothbard/genuine.asp The Case for a Gold Dollar], Murray Rothbard</ref><ref name="twilight"/> Vladimir Z. Nuri has analyzed fractional reserve banking and considers it a form of economic parasitism.<ref>[http://econpapers.repec.org/paper/wpawuwpma/0203005.htm Fractional Reserve Banking as Economic Parasitism]</ref> This view is not accepted by mainstream economists.<ref>[http://www.capitalspectator.com/archives/2005/11/does_m3_matter.html Capital Spectator, "Does M3 Matter"], November 16, 2005.</ref>

Critics of fractional reserve banking frequently argue that since money creation requires ''loans'' from the banking system, people are required to go further into debt in order for any new money to be created. They theorize that this eventually causes [[Austrian Business Cycle Theory|credit cycle]]s (or [[Austrian Business Cycle Theory|business cycles]]) and necessarily debases the [[means of exchange]].<ref>[http://www.marketoracle.co.uk/Article25212.html The Faults of FRB], Thorsten Polleit</ref>

Many critics find it problematic that banks "create money out of nothing" and consider this akin to [[counterfeiting]] and/or [[embezzlement]].<ref>[http://www.dailypaul.com/node/119914 Ron Paul video - fractional reserve banking is fraudulent]</ref><ref>[http://mises.org/daily/3687 ''End the Fed''], Ron Paul</ref><ref>[http://www.marketoracle.co.uk/Article25212.html The Faults of FRB], Thorsten Polleit</ref>

Other critics link the alleged negative effects of fractional reserve banking with central banking and a government-enforced "paper" or [[fiat currency]], which they claim allows the practice of fractional reserve banking to continue without a "natural" limitation on the growth of the [[money supply]], thereby causing inherently unsustainable "[[bubble (economics)|bubbles]]" in asset and capital markets, which are vulnerable to Ponzi-like speculation by highly leveraged [[hedge funds]] and other bank agents.<ref>[http://mises.org/daily/3687 ''End the Fed''], Ron Paul</ref><ref>[http://mises.org/store/Money-Bank-Credit-and-Economic-Cycles-P290C0.aspx Money, Bank Credit and Economic Cycles], Jesus Huerta de Soto, Mises Institute ISBN: 978-1-933550-39-8</ref><ref name="books.google.com">{{cite book |last= Brown |first= Ellen H. |title= Web of Debt |url= http://books.google.com/books?id=ILMGrEC524UC |accessdate= 2007-12-15 |year= 2007 |publisher= Third Millennium Press |location= Baton Rouge, Louisiana |isbn= 0979560802 }}</ref><ref name="death"/><ref name="monetary.org">[http://www.monetary.org/lostscienceofmoney.html Stephen A. Zarlenga, ''The Lost Science of Money'' AMI (2002)]</ref><ref>[http://mises.org/story/3108 Sound Money], Lew Rockwell</ref><ref>[http://mises.org/story/1971 Our Money Madness], Lew Rockwell</ref><ref>[http://mises.org/rothbard/genuine.asp The Case for a Gold Dollar], Murray Rothbard</ref><ref name="twilight"/><ref>[http://www.marketoracle.co.uk/Article25212.html The Faults of FRB], Thorsten Polleit</ref>

Some critics (particularly those from the [[Austrian School]]) support a "full reserve" banking system and criticize [[fractional reserve banking]] as inherently fraudulent. [[Murray Rothbard]] held this view very strongly throughout his life.<ref>[http://mises.org/daily/3687 ''End the Fed''], Ron Paul</ref><ref>[http://www.marketoracle.co.uk/Article25212.html The Faults of FRB], Thorsten Polleit</ref> Others support free banking.<ref>[http://books.google.com/books?id=DFv6OzeBWpQC&pg=PP3&dq=steven+horwitz++banking&sig=VZasp_8pGVvpQsFKMI3W9yp4AlM#PPA231,M1 Microfoundations and Macroeconomics: An Austrian Perspective], Steven Horwitz, pp. 223-232.</ref>

==Basic debate==

Many Austrian economists and monetary reformers focus on the combined use of [[fiat currency]], [[fractional-reserve banking]] and [[central banking]] as a negative feature of modern monetary systems.<ref>[http://mises.org/media/4014 The Economics of Legal Tender Laws], [[Jorg Guido Hulsmann]]</ref><ref>[http://mises.org/store/Meltdown-P557.aspx ''Meltdown''], Tom Woods, Regnery Press ISBN: 9781596985872</ref> These commentators use the term "debt-based monetary system" to refer to an economic system where [[money]] is created primarily through fractional-reserve banking techniques, using the banking system.<ref>[http://mises.org/daily/4569 What Does Debt-Based Money Imply for Interest Payments?], Robert Murphy</ref><ref>[http://mises.org/daily/4631 Is Our Money Based On Debt?], Robert Murphy</ref><ref name="speech"/> This form of money is called "debt-based" because as a ''condition of its creation'' someone must go into debt in order for the money to be created and it must be paid back plus interest at some time in the future.

To some commentators, this implies that as the [[money supply]] and the economy grows, the general populace becomes increasingly indebted at the same time due to the idea that debt grows in parallel with money supply growth, and increasing interest payments (from either taxpayers or indebted consumers) are needed to pay bondholders as the money supply grows.<ref name="death">{{cite book |last= Rowbotham |first= Michael |title= The Grip of Death: A Study of Modern Money, Debt Slavery and Destructive Economics | year= 1998 |publisher= Jon Carpenter Publishing |isbn= 9781897766408 }}</ref><ref name="twilight">[http://www.marketoracle.co.uk/Article4489.html Antal E. Fekete, The Twilight of Irredeemable Debt]</ref><ref name="The Forgotten War">[http://news.goldseek.com/GoldSeek/1192819378.php America's Forgotten War Against the Central Banks], Mike Hewitt</ref>

One argument posits that since debt and the interest on the debt can only be paid in the same form of money, the total debt (principal plus interest) can never be paid in a debt-based monetary system unless more money is created through the same process. For example: if 100 credits are created and loaned into the economy at 10% per year, at the end of the year 110 credits will be needed to pay the loan and extinguish the debt. However, since the additional 10 credits does not yet exist, it too must be borrowed. To some, this implies that debt must grow exponentially in order for the monetary system to remain solvent.<ref name="death"/><ref name="twilight"/><ref>[http://globaleconomicanalysis.blogspot.com/2011/01/steve-keen-responds-to-world-economic.html Exponential Credit], MISH,</ref>

Others argue that there is in fact no mathematical necessity for the stock of money in a debt-based system to grow, as the "turnover" or "flow" or "velocity" of money can increase to allow for compounding interest payments.<ref>[http://mises.org/daily/4569 What Does Debt-Based Money Imply for Interest Payments?], Robert Murphy</ref><ref>[http://www.debtdeflation.com/blogs/2010/10/08/ami-talks-in-flv-format/ AMI Conference 2010], Steve Keen</ref><ref>[http://www.debtdeflation.com/blogs/2010/11/05/solving-the-paradox-of-monetary-profits-2/ Solving the Paradox of Monetary Profits], Steve Keen</ref> However this does imply that some consumers would increasingly have to consume and transact to expand the GDP sufficiently to allow the fixed stock of money to turnover sufficiently to pay for the interest compounding on top of the debt.<ref>[http://globaleconomicanalysis.blogspot.com/2011/01/steve-keen-credit-impulse.html The Credit Impulse], Steve Keen with commentary from MISH</ref><ref>[http://mises.org/daily/4569 What Does Debt-Based Money Imply for Interest Payments?], Robert Murphy</ref><ref>[http://www.debtdeflation.com/blogs/2010/10/08/ami-talks-in-flv-format/ AMI Conference 2010], Steve Keen</ref><ref>[http://www.debtdeflation.com/blogs/2010/11/05/solving-the-paradox-of-monetary-profits-2/ Solving the Paradox of Monetary Profits], Steve Keen</ref> This may mean that Ponzi-like dynamics bubble up in "pockets" of the economy with interest payments being allowed in a fixed money economy, but these "pockets" of higher consumption or speculation would pop and die out relatively quickly.<ref>[http://mises.org/daily/4569 What Does Debt-Based Money Imply for Interest Payments?], Robert Murphy</ref><ref>[http://globaleconomicanalysis.blogspot.com/2011/01/steve-keen-credit-impulse.html The Credit Impulse], Steve Keen with commentary from MISH</ref>

==Basic nature of system==

The economic, environmental and social effects arising from money creation through fractional-reserve banking has been subject to much heated political debate for well over two centuries.<ref name="The Forgotten War"/><ref name="books.google.com"/><ref name="death"/><ref name="twilight"/><ref>[http://www.silverbearcafe.com/private/fracbank.html Antal E. Fekete, Fractional Reserve Banking Revisited]</ref>

Critics claim that, in contrast to "debt money" (which is money created in parallel with the issuance of debt or [[Credit (finance)|credit]]), "true" fiat currency is issued by the [[Treasury]] of a [[central government]] debt-free, as no requirement for its eventual return is made as a condition of its creation.<ref name="monetary.org"/><ref name="The Forgotten War"/> Government-issued debt-free fiat currency (such as debt-free notes and coins) can circulate perpetually in the economy as "stable" or even [[sound money]] (if backed by [[gold]] or [[silver]]) and although not as stable as [[hard currency]], government-issued debt-free notes and coins (such as [[United States Note]]s and [[silver certificate]]s) do not have the same effects of debt-based money described below.<ref>[http://www.entrewave.com/freebooks/docs/a_pdfs/gnhm.pdf Honest Money]</ref> It should be noted however that fiat currency can be a source of [[hyperinflation]] if its production is not controlled, as the government has the potential to issue unlimited amounts of fiat currency - ''provided'' it is accepted as "money" by the [[private bank]]ing system.<ref>[http://mises.org/books/shorthistorypapermoney.pdf A Short History of Paper Money in the United States], William M. Gouge, Mises Institute</ref> Notes and coins in circulation (being defined as [[M0]]) now account for a tiny fraction of the total M3 [[money supply]] in all developed, debt-based [[capitalism|capitalist]] economies (and M0 is also generally less than 10% of the total [[M2 (economics)|M2]] money supply in most developed economies).<ref>[http://www.dollardaze.org/blog/?post_id=00216 Global Money Supply Ratios]</ref>

Similarly, gold, silver and other [[precious metals]] have in the past been used as money. Because of the difficulty in increasing the supply of precious metals quickly, some [[monetary reform]]ers believe a return to the [[gold standard]], or a similar system of "hard" or "real" asset-backed currency, is the only way to stabilize the growth of the money supply. These monetary reformers often refer to the gold standard and [[silver standard]] as "sound money" or "honest money".<ref>[http://mises.org/daily/4860 Money: Sound and Unsound], Mark Thornton commentary on Joseph Salerno's book</ref>

==Other economic and political criticisms==

In a 2003 statement to the U.S. House of Representatives, Ron Paul stated "if unchecked, the economic and political chaos that comes from currency destruction inevitably leads to tyranny".<ref name="house.gov">[http://www.house.gov/paul/congrec/congrec2003/cr090503.htm Paper Ron Paul, Paper Money and Tyranny, Speech in U.S. House of Representative, September 5, 2003]</ref>

Some economic thinkers (primarily members of the [[Austrian School]]) and political commentators believe that a debt-based monetary system amounts to a subtle form of monetary "[[fraud]]" in that it creates money "costlessly" through the use of [[fractional-reserve banking]] techniques.<ref>[http://www.mises.org/rothbard/moneyback.asp Taking Money Back, by Murray Rothbard]</ref>

[[Michael Rowbotham]] is an active proponent of [[monetary reform]], and argues that this system of [[money supply]] is perverse and inherently monopolistic and "anti-[[democratic]]", as it creates an inflationary [[exponential growth]] imperative in the economy which leads to over-centralization and [[Natural environment|environment]]ally damaging and unstable [[over-consumption]]. Critics such as Rowbotham argue that the indebted are forced to induce new [[consumers]] to spend their way into debt so existing loans can be repaid with new debt-created money. Failure to achieve this goal results in [[foreclosure]] for those businesses and [[insolvency]] in the banking system that leads to economic collapse due to the sudden contraction of the money supply.<ref name="death"/><ref name="Ponzi Nation">[http://www.iimagazine.com/article.aspx?articleID=1234345 Ponzi Nation]</ref>

Mark Anielski as well as some political thinkers such as Rowbotham and some economists (such as [[Hyman Minsky]], [[Steve Keen]] and [[Mike Shedlock]]) argue that this system of money supply has characteristics similar to a [[pyramid scheme]], where the newly indebted are compelled to induce others into debt to pay off their own debts.<ref>[http://globaleconomicanalysis.blogspot.com/2011/01/steve-keen-credit-impulse.html The Credit Impulse], Steve Keen with commentary from MISH</ref><ref>[http://www.lin.ca/resource/html/arpa02/PC1-FertileObfuscation.pdf ''Fertile Obfuscation: Making Money Whilst Eroding Living Capital''], 34th Annual Conference of the Canadian Economics Association, Mark Anielski</ref> It is therefore argued by a number of monetary reformers that fractional-reserve banking and the associated exponential growth of money in the economy "forces" the economy towards indebted [[consumerism]].<ref name="books.google.com"/>

Rowbotham argues that a major negative side-effect of the debt-based monetary system is its effect on [[agriculture]], claiming that [[residential development]] produces one of the greatest continuous injections of debt money into the economy. Therefore, significant super-normal profits can be generated by re-zoning agricultural land and replacing it with low-density [[House|housing]].<ref name="death"/>
If this is correct, this trend will lead to the destruction of fertile [[arable land]], as farmers cannot compete to retain fertile arable land from property developers at the periphery of major population centers, and as this land is then progressively re-zoned for speculative new residential development. Rowbotham also predicts that the global supply of fertile [[arable land]] will decline, leading to a broad decline in the quality and nutritional value of agricultural produce and, eventually, a dramatic increase in the prices of many "soft" commodities - which could then lead to actual food shortages for poorer segments of the world population.<ref>[http://www.lewrockwell.com/blog/lewrw/archives/76920.html The Corporate State and the Tapeworm Economy], Catherine Austin Fitts</ref><ref name="death"/><ref>[http://www.wsws.org/articles/2007/dec2007/food-d22.shtml Naomi Spencer, World Socialist Website, "Severe food shortages, price spikes threaten world population", 22 December 2007]</ref>

If for any reason the monetary system broke down, urban populations (nominally "rich" but poor in terms of direct access to [[food supply]]) could find basic foodstuffs either rationed or unavailable at any price, ultimately resulting in food security becoming a major public policy issue - particularly if combined with oil supply shortages or an oil price spike, as major population centers worldwide are almost entirely reliant on mass transportation of food from distant (or even foreign) locations to survive day-to-day.<ref name="death"/><ref>[http://www.wsws.org/articles/2007/dec2007/food-d22.shtml Severe food shortages, price spikes threaten world population]</ref><ref>[http://www.nytimes.com/2010/12/18/business/global/18yuan.html?hpw Inflation in China]</ref><ref>[http://www.lewrockwell.com/blog/lewrw/archives/76920.html The Corporate State and the Tapeworm Economy], Catherine Austin Fitts</ref>

===Effects on economic health===

According to Michael Rowbotham the expansion of money through debt creates [[Boom and bust|economic bubbles]]. This concentrates [[wealth]] in the hands of private banks as the populace is forced into [[debt]] simply to own a home and educate their children.<ref name="death"/> Debt expansion leads to price appreciation of assets through speculation as the financial market becomes riskier. Edward Chancellor compares this type of market to a monetary [[Ponzi scheme]].<ref>[http://www.iimagazine.com/article.aspx?articleID=1234345 Ponzi Nation,"Who is Hyman Minsky?", para 6]</ref>

The bust phase of this [[business cycle]] where "debt-based" money growth slows or contracts catches newly indebted businesses and consumers who are left out of the growth cycle.<ref name="death"/><ref name="Ponzi Nation"/>

===Effects on the environment===
There are also critics in the left-wing and [[environmentalist]] camps who contend fractional reserve banking (by creating a necessity for indefinite [[economic growth]]) leads to environmental destruction and a sudden, catastrophic depletion of natural resources as the unsustainable, exponential consumption of the world's scarce natural resources reaches its inevitable limits.<ref>David Korten, ''Agenda For A New Economy'', Berret-Koehler, 2009</ref><ref>[http://www.monbiot.com/archives/2004/10/06/no-longer-obeying-orders/ George Monbiot], about five sixths of the way down</ref>

===Inherent problems with the system===

Some monetary reformers predict that there will be an increased incidence of financial crises in the developed world, as economic and [[population growth]] inevitably slow and as the success of [[laissez-faire]] economic political policies result in a reduction in redistributive [[tax]] policies which, combined with the debt-legacy of the [[welfare state]], allows an intense and unsustainable concentration of wealth and political power in the financial services sector.<ref name="death">{{cite book |last= Rowbotham |first= Michael |title= The Grip of Death: A Study of Modern Money, Debt Slavery and Destructive Economics | year= 1998 |publisher= Jon Carpenter Publishing |isbn= 9781897766408 }}</ref>

Some monetary reformers argue that perverse incentives in the financial services industry lead to a collusive relationship between governments and bankers which are economically and socially destablizing in the long run.<ref>[http://mises.org/media/4014 The Economics of Legal Tender Laws], Jorg Guido Hulsmann</ref>

Some monetary reformers argue that it is vital that the indebted "victims" who must sink deeper into debt for the system to survive do so voluntarily and willingly and are not made aware of the consequences of purchasing consumables with debt money.<ref name="death">{{cite book |last= Rowbotham |first= Michael |title= The Grip of Death: A Study of Modern Money, Debt Slavery and Destructive Economics | year= 1998 |publisher= Jon Carpenter Publishing |isbn= 9781897766408 }}</ref> Some politicians and others have highlighted the fact that mainstream media organizations appear to downplay or minimize the seriousness of deficit spending by government and debt-sourced spending of all kinds.<ref>[http://www.senate.gov/~budget/democratic/statements/2005/fs_reconciliationfloorstmt102005.pdf Speech by Senator Kent Conrad (D-ND) on October 20, 2005 regarding the "misleading" reporting of deficit spending by the mainstream media]</ref> The associated growth of derivatives during the upward phase of the debt money cycle was referred to as "[[innovation]]" in financial markets.<ref>[http://www.nytimes.com/2007/12/03/opinion/03krugman.html?em&ex=1196917200&en=ac60abcdbd977d07&ei=5087%0A Innovating Our Way to Financial Crisis, by Paul Krugman]</ref>

[[Bankruptcy]] laws differ to a small degree in different jurisdictions but in all developed economies unpaid debt results in legal penalties, property confiscation on behalf of the creditor and income [[sequestration]]. Although in [[Christian]], [[Jewish]] and [[Muslim]] religious practice there have been traditions of [[debt relief]] or laws against [[usury]], in no modern Western jurisdiction are any debts periodically forgiven or cancelled in recognition of the inherent impossibility of repaying debts in circumstances where the debt-based monetary cycle has inevitably resulted in too little new [[debt money]] being injected into the [[money supply]] to pay for the currently outstanding debts.<ref>[http://www.nakedcapitalism.com/2007/11/new-bankruptcy-law-backfires-by.html Bankruptcy law backfires]</ref>

On a national level, if the issuance of [[government bonds]] becomes unsustainable, sovereign [[bankruptcy]] can occur - and has occurred many times in history.<ref>[http://mises.org/daily/4869 Can the Fed Become Insolvent?], Robert Murphy</ref><ref>[http://elainemeinelsupkis.typepad.com/money_matters/2007/10/greenspaniel-an.html Greenspaniel and U.S. bankruptcy]</ref><ref>[http://www.prudentbear.com/index.php/thebearslairview?art_id=10493 Dee-Fault!], Martin Hutchinson, Prudent Bear</ref> [[Sovereign debt]] crises due to the inability of nations to pay interest on [[government bonds]] have occurred frequently and regularly in the [[third world]] and less frequently (every 30 years or so) in the first world as a result of high levels of unsustainable public debt - often because private debts are assumed by a corrupt government through large private bank bailouts.<ref>[http://www.dailymail.co.uk/debate/article-1331076/Ireland-bailout-Lets-frank-7bn-bunch-liars-crooks-bunglers.html Ireland Bailout], Alex Brummer</ref><ref>[http://www.marketoracle.co.uk/Article24543.html QE2 and the Great Economic Misdiagnosis], Jim Willie</ref> The [[Latin American debt crisis]] is an example of sovereign debt levels becoming unsustainable, resulting in a [[currency crisis]] and economic collapse, as [[interest rates]] rise precipitously due to the inability of the national government to attract financiers to purchase new [[government bonds]] to inject new [[debt money]] into the ailing economy.<ref>[http://www.marketoracle.co.uk/Article24543.html QE2 and the Great Economic Misdiagnosis], Jim Willie</ref>

At such times, it is the responsibility of the [[IMF]] to come in as a kind of supranational [[central bank]] to mediate between the national government and international financiers. The role of the [[IMF]] as [[central bank]] to the world has similar responsibilities and risks inherent in [[central bank]]ing which are described below in relation to the role of the [[Federal Reserve]]. If the [[IMF]] repeatedly intervenes to save financiers from loss when sovereign bankruptcy occurs, this has a tendency to induce [[moral hazard]] and can encourage the financing of reckless government spending and borrowing.<ref>[http://www.rgemonitor.com/41 IMF Reform and International Lender of Last Resort, RGE Monitor]</ref><ref>[http://info.interactivist.net/article.pl?sid=02/11/07/199213&mode=thread&tid=8 Banking Bunkum, by Henry C.K. Liu]</ref><ref>[http://www.marketoracle.co.uk/Article24543.html QE2 and the Great Economic Misdiagnosis], Jim Willie</ref>

A [[single currency]] regime such as the [[Euro]] can mask national liquidity or solvency crises, by ensuring that a national currency is not quickly exchangeable for another, thereby restricting the ability of national governments to depreciate their currencies and cutting off the possibility that the real value of [[government bond]] interest repayments could decline relative to other currencies.<ref>[http://www.dailymail.co.uk/news/article-1316442/Anglo-Irish-Bank-bail-Will-Irish-economic-meltdown-hit-UKs-fragile-recovery.html Irish Meltdown], UK Mail On-line,</ref><ref>[http://www.marketoracle.co.uk/Article24459.html Ireland Bailout Consequences for Britain, Portugal Next?], Nadeem Walayat</ref><ref>[http://www.marketoracle.co.uk/Article24543.html QE2 and the Great Economic Misdiagnosis], Jim Willie</ref><ref>[http://news.goldseek.com/RichardDaughty/1192374060.php The Mogambo Theory of Currency Relativity]</ref><ref>[http://www.youtube.com/watch?v=IvJEJEGzeU8&feature=player_embedded#! Putin ditches dollar], RTTV</ref> This may however increase the risk of bond default where indebted national governments cannot pay back the interest payments in the denominated common currency.<ref>[http://www.dailymail.co.uk/news/article-1316442/Anglo-Irish-Bank-bail-Will-Irish-economic-meltdown-hit-UKs-fragile-recovery.html Irish Meltdown], UK Mail On-line,</ref><ref>[http://blog.mises.org/15129/bagus-explains-the-ecb-and-the-euro/ The Tragedy of the Euro], Philipp Bagus</ref>

===Types of downturns===
{{main|Austrian Business Cycle Theory}}

There are two main kinds of debt money contraction that can cause a collapse in the value of inflated assets.

A "credit squeeze" occurs where new debt money is difficult to access without a high [[credit rating]]. At such times marginal borrowers, or those who have borrowed at the end of any debt-induced asset bubble, get "squeezed" out of further borrowing and a contraction in the growth of new debt money occurs, triggering a slow down in the growth of inflated assets. Those assets can then be "harvested" by the [[private bank]]s through widespread [[foreclosure]] or [[bankruptcy]] and re-sold to those with the money to buy the distressed assets.<ref name="marketoracle.co.uk">[http://www.marketoracle.co.uk/Article2882.html Market Fundamentalism, by Richard C. Cook]</ref>

A "credit crunch" occurs where new debt money is not available at any [[interest rate]] - even for those with previously acceptable credit ratings - due to widespread insolvency in the banking system. At such times, it is the banking system itself that is [[insolvent]] and other financial institutions (including overseas financiers) become reluctant to lend to the domestic banking system, resulting in the domestic banking system being unable to issue loans even to credit worthy borrowers.<ref>[http://www.scribd.com/doc/3906112/Credit-CrunchThe-New-Financial-Snack Credit Crunch, by Satyajit Das]</ref>

At any stage during the downward spiral of a "credit crunch", the [[central bank]] in a modern economy can try to save the system from complete economic [[meltdown]] by purchasing (either indefinitely or temporarily) the failed debts of the private banks.<ref>[http://www.youtube.com/watch?v=PTUY16CkS-k&feature=player_embedded#! Quantitative Easing Explained]</ref><ref>[http://www.marketoracle.co.uk/Article24489.html Does the Fed Create Money?] Michael Pento</ref><ref>[http://www.telegraph.co.uk/money/main.jhtml?view=DETAILS&grid=A1YourView&xml=/money/2007/12/19/ccom119.xml ECB's mind-numbing cash injection]</ref> This involves swapping depreciating "failed" assets with hard cash, thereby allowing the banks to maintain their net asset position and continue to give the impression of solvency to their auditors and depositors. However, doing so results in cash being transferred to the private banks in exchange for [[bad debt]], thereby violating the general economic precept to avoid [[moral hazard]] and effectively makes liquid the failed lending decisions of the [[private bank]]s.<ref>[http://www.rgemonitor.com/blog/roubini/228924/ Privitizing Profits and Socializing Losses, by Nouriel Roubini]</ref> In the U.S. banking system this is called "opening the Fed discount window", where the [[Federal Reserve]] temporarily purchases the failed investment portfolios of distressed private banks in exchange for cash. However, this rescue measure may only delay, rather than avoid, the realization of losses in the banking system, as the central bank cannot "force" new borrowing into the system to inject new debt money into the money supply. Somebody has to be a [[counterparty]] to borrow the debt money that is being offered. If all market participants realize a "[[bubble (economics)|bubble]]" has formed in assets markets, there will be few (or no) buyers for new debt money, as no one wants to borrow to buy inflated assets no one else will buy. Money markets can therefore remain illiquid even with intense [[central bank]] support.

Furthermore, banks can go bust even with intense central bank support, if the issue is not one of liquidity, but one of solvency.<ref>[http://www.ft.com/cms/s/0/233ae764-abef-11dc-82f0-0000779fd2ac.html Central Banks have No Plan]</ref><ref>[http://www.rgemonitor.com/blog/roubini/233120 Central Banks get desperate]</ref><ref>[http://www.youtube.com/watch?v=VMngK0t5WkY $20 Trillion in Bad Debt], Max Keiser</ref>

===Pushing on a string===
Some monetary economists describe the opening of the Fed discount window after the bursting of an asset bubble as "[[pushing on a string|pushing on a piece of string]]", as this measure does not solve the key problem – creating new credit (or debt money) to keep up the growth in the money supply and maintain the required level of liquidity in credit markets.<ref>[http://www.mises.org/story/2695 Don't Discount the Fed Discount Window]</ref><ref>[http://www.federalreserve.gov/Pubs/FEDS/2004/200401/200401pap.pdf Monetary Policy in Deflation: The Liquidity Trap in History and Practice]</ref> This is because unlimited central bank money and low interest rates ''allow'' credit creation, but do not ''force'' it into the system. In order for any new debt money to be created, somone has to borrow the excess reserves in order for the money to be injected into the system. If corporations and individuals are already heavily indebted (or insolvent after the bursting of another debt-induced bubble) there are no credit-worthy borrowers to lend to.

To encourage fresh borrowing, central banks generally combine these rescue measures with an interest rate cut to encourage more new borrowing to allow the existing (failed) debts to be [[liquidate]]d at or close to their original value. When [[Alan Greenspan]] repeatedly resorted to this tactic to revive illiquid [[money market]]s this became known in the market as the "[[Greenspan put]]", as the effect of these repeated reductions in interest rates was similar to a [[put option]] in the [[stockmarket]], insuring [[bank]]s' lending mistakes would be covered up by the Federal Reserve.<ref>[http://www.iie.com/publications/wp/02-1.pdf Moral Hazard and the "Greenspan Put"]</ref>

When interest rates cannot go any lower (the so-called "zero bound" monetary problem) and people still will not - or cannot - load themselves up with more debt, then the Keynesian solution is to run large public deficits and indebt future generations (who, they hypothesize, are more likely to be able to pay through increased future growth).<ref>[http://www.nytimes.com/2010/12/26/business/26view.html?_r=1&scp=1&sq=shiller&st=cse Stimulus Without More Debt], Robert Shiller</ref> Fabian socialists, and Keynesian economists such as Paul Krugman and Robert Shiller, argue that governments must take charge of the responsibility of spending more (and taking on more debt) on behalf of the public (who are too fearful to take on more debt themselves) in order to compensate for the immediate and urgent ''present'' insufficiency in total private consumption.<ref>[http://www.nytimes.com/2010/12/26/business/26view.html?_r=1&scp=1&sq=shiller&st=cse Stimulus Without More Debt], Robert Shiller</ref> Paul Krugman is a prominent advocate of the policy of spending trillions of government money to help stimulate the economy, if spending billions does not work.<ref>[http://www.nytimes.com/2010/06/21/opinion/21krugman.html?dbk Budget Deficits], Paul Krugman</ref><ref>[http://globaleconomicanalysis.blogspot.com/2010/10/krugman-and-inevitable-i-told-you-so.html Krugman], MISH</ref><ref>[http://krugman-in-wonderland.blogspot.com/2010/11/inflation-prisoner.html The Inflation Prisoner], William Anderson</ref> For economists such as Paul Krugman, if the "more and more government spending" solution does not work initially, it is a sign that not enough government money has been spent.<ref>[http://www.nytimes.com/2010/12/20/opinion/20krugman.html?hp When Zombies Win], Paul Krugman, NY Times</ref><ref>[http://globaleconomicanalysis.blogspot.com/2010/10/krugman-and-inevitable-i-told-you-so.html Krugman], MISH</ref> It is his view that the "deflationary" Japanese recession from 1991/2 could have been cured by the Japanese government going into even more debt than the current net debt to GDP ratio of 110%.<ref>[http://www.nytimes.com/2010/06/21/opinion/21krugman.html?dbk Budget Deficits], Paul Krugman</ref><ref>[http://www.economist.com/node/15867844 Japan's debt-ridden economy], The Economist</ref>

Although there is active debate as to whether this policy (indebting future generations by the government spending debt-sourced money on projects the private sector would not touch) can actually help the economy long term,<ref>[http://www.prudentbear.com/index.php/featuredcommentaryview?art_id=10485 Krugman Is Eating America Alive], Neeraj Chaudhary, Prudent Bear</ref><ref>[http://www.marketoracle.co.uk/Article25163.html Keynesian models], Robert Murphy</ref><ref>[http://krugman-in-wonderland.blogspot.com/2010/11/inflation-prisoner.html The Inflation Prisoner], William Anderson</ref><ref>[http://www.lewrockwell.com/north/north925.html Yes, Virginia, There Really Is a Free Lunch], Gary North</ref> there is no argument that this would undoubtedly help the present group of private bankers, as increased income from the interest payments on new government bond issuance offsets the decline in private sector debt and allows private bankers to survive when otherwise they may face collapse due to the fatal impairment of their balance sheets through private debt write-offs after an unsustainable debt-fuelled bubble bursts.<ref>[http://georgewashington2.blogspot.com/2010/08/quantitative-easing-wont-help-economy.html QE won't help the economy]</ref><ref>[http://moneymorning.com/2010/11/19/federal-reserves-quantitative-easing-strategy-save-the-us-economy/ QE won't save the economy]</ref>

As government debt is effectively an asset on the books of the banks, increasing Treasury bond issuance necessarily increases the profitability and net asset position of the debt-issuing banks - at least until government insolvency renders the value of those bonds worthless.<ref>[http://www.marketoracle.co.uk/Article25313.html Asset Speculation and Capital Destruction], Jim Willie</ref><ref>[http://www.prudentbear.com/index.php/featuredcommentaryview?art_id=10485 Krugman Is Eating America Alive], Neeraj Chaudhary, Prudent Bear</ref>

===Inequities in system===

In a worse-case scenario, where banks cannot lend even if the government continually swaps failed assets with cash, then the government can try to spend money into the economy and try to "inflate" its way out of economic crisis. It can do this by printing money. This is now called "quantitative easing".<ref>[http://www.marketoracle.co.uk/Article25964.html QE is Nothing New], Mike Hewitt</ref> Aside from the [[moral hazard]] issue, the key risk with [[quantitative easing]] (and the associated attempt to control [[interest rate]]s, to encourage new debt money creation) is that the [[central bank]] exposes the financial system to systemic inflation, as the growth in the [[money supply]] spirals out of control due to the need to save the [[bank]]s from themselves, and ultimately precipitates a currency and associated government bond crisis (as the debt-based currency becomes dysfunctional when either the currency becomes worthless or when debtors - including government debtors - cannot even pay interest on the debt money).<ref>[http://www.marketoracle.co.uk/Article25964.html QE is Nothing New], Mike Hewitt</ref><ref>[http://www.marketoracle.co.uk/Article25313.html Asset Speculation and Capital Destruction], Jim Willie</ref><ref>[http://www.swlearning.com/economics/hall/hall-lieb2e-upd/ppt_lecture/exchange_rate_macro_policy.ppt Exchange Rates and Macroeconomic Policy]</ref><ref>[http://www.sciencedirect.com/science?_ob=ArticleURL&_udi=B6VGT-41WBFRG-1&_user=10&_rdoc=1&_fmt=&_orig=search&_sort=d&view=c&_acct=C000050221&_version=1&_urlVersion=0&_userid=10&md5=4e89075114dcdb58b503172ff1801bd2 Central Bank Intervention]</ref><ref>[http://www.federalreserve.gov/newsevents/speech/mishkin20071026a.htm Financial Instability and the Federal Reserve as a Liquidity Provider, by Frederic S. Mishkin]</ref>

For these reasons, a collapse in confidence in the [[solvency]] of the domestic banking system (and the central government) is one of the most complex and difficult policy issues any central government can face.<ref>[http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100008812/irelands-debt-servitude/ Ireland's Debt Servitude], Ambrose Evans-Pritchard, UK Telegraph</ref>

In such crises of confidence, a central bank may choose to save the current players in the banking sector by printing money and inflating its way out of the crisis, thereby debasing the value of the domestic [[currency]].<ref>[http://mises.org/daily/4869 Can the Fed Become Insolvent?], Robert Murphy</ref> This is now called [[quantitative easing]].<ref>[http://blog.mises.org/14626/quantitative-easing-explained/ Quantitative Easing Explained], YouTube video</ref> Some comentators have commented that the media and the Fed have to constantly come up with new terms (such as "quantitative easing") to hide the fact that they are simply repeating the same failed policy of monetary inflation and the creation of worthless fait money over and over.<ref>[http://www.marketoracle.co.uk/Article25679.html Many Euphemismis for Money Creation], Thorsten Polleit</ref>

This is also referred to by some [[monetary reform]]ers and [[economist]]s as "[[socialism for the rich and capitalism for the poor]]", as many indebted [[consumers]] will still lose their [[house]]s and be declared [[bankrupt]] regardless whether or not the central bank intervenes to save marginal lenders who have been made [[insolvent]] through their mis-timing of the [[credit cycle]].<ref>[http://www.rgemonitor.com/blog/roubini/228924/ Privatizing Profits and Socializing Losses, by Nouriel Roubini]</ref><ref>[http://www.beearly.com/pdfFiles/Satyajit%20Das.pdf Regulatory Debauchery by Satyajit Das]</ref> Future generations of innocent taxpayers may ultimately finance any [[bail out]] of reckless lenders, as the money used to fund any [[bail out]] will be funds diverted from the general revenue of the central government.<ref>[http://www.ft.com/cms/s/0/f4cf8426-654d-11dc-bf89-0000779fd2ac.html A run on the bank]</ref>

Some bankers and financial commentators still refer to [[Walter Bagehot]]'s 1873 commentary on monetary crises, ''Lombard Street'', in an attempt to gain insights into the way in which central bankers should revive illiquid banking systems.<ref>[http://blogs.ft.com/economistsforum/2010/04/a-history-lesson-from-lombard-street-for-wall-street-in-2010/ History Lesson from Lombard Street], Roger Farmer, Ft.com</ref> However this old text may be outdated in circumstances where the community's debt limits have been reached and where the banking crisis arises from insolvency rather than illiquidity.<ref>[http://www.marketoracle.co.uk/Article24543.html QE2 and the Great Economic Misdiagnosis], Jim Willie</ref>

A prime example of the fatal effects of combining aging demographics with reckless bank lending in a purely fiat debt-based monetary system can be found in the case of the [[Japanese asset price bubble]].<ref>[http://www.economist.com/displaystory.cfm?story_id=10286992 The Japanese and American Bubbles: Been There, Done Some of That]</ref>

===The Keynesian Endpoint===

Some more extreme monetary reformers and [[conspiracy theorists]] anticipate the declaration of [[martial law]] and the imposition of [[fascist]]-style restrictions on [[civil rights]] and [[freedom of speech]] by the political [[The Establishment|Establishment]] to physically protect it from [[anarchy]] or military [[coup]] when the [[bubble (economics)|bubble]] of debt completely bursts, either through a precipitous currency crisis or debt-created [[Depression (economics)|depression]].<ref>[http://www.lewrockwell.com/lewrockwell-show/2010/12/14/179-the-espionage-act-and-the-death-of-american-freedoms/ Death of American Freedoms], Naomi Wolf, LRC interview, Dec 14, 2010</ref><ref>[http://www.house.gov/paul/congrec/congrec2007/cr120507h.htm New security legislation threats freedoms]</ref> Some conspiracy theorists also anticipate price controls, then rationing of basic essentials, as the coalescence of a corrupt banker-government coalition solidifies to eliminate potential dissent and ensure the forced elimination - by any means necessary - of any actual or potential competing [[currencies]] that could threaten the viability or legitimacy of the [[monopoly]] currency, which could include the compulsory confiscation of all privately-owned [[gold]] (gold being the ultimate reserve currency, still used by central banks as a universally accepted medium of exchange for the settlement of international debts).<ref>[http://blog.mises.org/14795/the-gold-clause-cases-and-constitutional-necessity/ Gold Clause Cases]</ref><ref>[http://news.goldseek.com/GoldSeek/1196605589.php America's Trade Debts Lead to a Likely Gold Confiscation]</ref><ref>[http://www.libertydollar.org/ld/legal/raid.htm FBI Raids Liberty Dollar]</ref><ref>[http://www.lewrockwell.com/rothbard/solution.html The Solution]</ref><ref>[http://prudentinvestor.blogspot.com/2007/09/us-mint-suspends-gold-coin-sales-due-to.html US Mint Suspends Gold Coin Sales]</ref><ref>[http://www.swissamerica.com/article.php?art=06-2004/200406140537f.txt Why a Gold Standard Now?]</ref><ref>[http://www.lewrockwell.com/blog/lewrw/archives/73468.html Bank of America an arm of US government policy]</ref>

There have been many [[financial crisis|monetary crises]] throughout history<ref>[http://mises.org/store/Early-Speculative-Bubbles-P578.aspx Early Speculative Bubbles and Increases in the Money Supply], Doug French, Mises Institute ISBN: 978-1-933550-44-2</ref><ref>[http://dailyreckoning.com/a-word-of-advice-to-financial-authorities/ Advice to Financial Authorities], Bill Bonner</ref> and prior to widespread anarchy or [[revolution]], in the late stages of a [[financial bubble]], there are a number of warning signs of impending [[chaos]] caused by a complete breakdown of trust in the debt-based [[monetary system]].<ref>[http://mises.org/store/Product.aspx?ProductId=435 Fiat Money Inflation in France], Andrew Dickson White, Mises Institute</ref><ref>[http://www.marketoracle.co.uk/Article25313.html Asset Speculation and Capital Destruction], Jim Willie</ref> Just prior to the complete collapse of the [[pyramid scheme]] of public and private debt, the economic system tends to feed on itself, and in the past, where debt-created [[Depression (economics)|depression]]s or periods of [[hyperinflation]] have occurred in [[Europe]], the [[U.S.]] and [[China]], there has been a sustained spike in predatory economic behavior, as the heavily indebted central government and producers are forced to find more extreme (previously considered unethical) methods to extract any remaining wealth from increasingly desperate and impoverished [[consumers]], who are either unwilling or unable to go into further debt without forceful coercion.<ref name="http">{{cite book |last= Widdig |first= Bernd |title= Culture and Inflation in Weimar Germany |url= http://books.google.com/books/ucpress?id=kvKAATycUzIC |accessdate= 2007-12-16 |year= 2001 |publisher= University of California
Press |isbn= 0520222903 }}</ref><ref>[http://mises.org/daily/3569 John Law and the Invention of Modern Finance], Doug French (Mises.org)</ref><ref>[http://mises.org/daily/1690 The Saga of John Law and Richard Cantillon], Sean Corrigan (Mises.org)</ref> [[Long-term]] investment and sustained [[capital investment]] are almost impossible in this environment because the "measuring stick" of [[return on investment]] (the real value of [[money]]) is so uncertain at times of debt-induced [[credit crunch]], depression or hyperinflation.<ref>[http://www.marketoracle.co.uk/Article25313.html Asset Speculation and Capital Destruction], Jim Willie</ref>

As potential new [[borrower]]s and international financiers are scared away from participating in the [[pyramid scheme]] of debt and borrowing further, the [[monetary system]] seizes up, starved of the fresh injections of [[debt money]] it needs for its survival, thereby precipitating economic [[anarchy]], widespread [[lawlessness]] and [[insolvency]] of the monetary and banking system.<ref>[http://www.oftwominds.com/blognov07/empire-debt1.html Empire of Debt]</ref><ref>[http://www.goldensextant.com/SavingtheSystem.html Fiat's Reprieve, by Robert K. Landis]</ref><ref>[http://www.marketoracle.co.uk/Article25313.html Asset Speculation and Capital Destruction], Jim Willie</ref> Some have described the moment when governments cannot borrow any more from banks to keep up the growth in debt money as the "Keynesian Endpoint" - which is the point in time when the ''in extremis ''"emergency" measures by the government to kick-start the economy by increasing total gross debt have no lasting positive effect on GDP.<ref>[http://en.wikipedia.org/wiki/Keynesian_endpoint Keynesian Endpoint], Wikipedia definition</ref> Antal E. Fekete identifies this "crisis" point as the point when the marginal increase in total gross debt has no positive marginal effect on GDP.<ref>[http://www.professorfekete.com/articles/AEFGotterdammerung.pdf Gotterdammerung], Antal E. Fekete</ref> According to Professor Fekete, once the marginal productivity of debt turns negative, a disastrous depression is inevitable.<ref>[http://www.professorfekete.com/articles/AEFGotterdammerung.pdf Gotterdammerung], Antal E. Fekete</ref>

This final denouement is triggered when [[borrower]]s cannot be found to buy depreciating heavily indebted assets, and international financiers reduce lending as they experience losses on pre-existing loans either through asset or currency [[depreciation]]. Some analysts predict that the [[monetary system]] will seize up due to a [[deflationary]] depression or a sustained period of [[stagflation]]ary hyperinflation resulting in a "final and total catastrophe of our fiat monetary system."<ref>[http://www.goldensextant.com/SavingtheSystem.html Fiat's Reprieve, by Robert K. Landis]</ref><ref>[http://www.marketoracle.co.uk/Article25313.html Asset Speculation and Capital Destruction], Jim Willie</ref>

This has often occurred after a failed [[aggressive war]], as international financiers realize the heavily indebted [[government]] they funded will not gain the [[resources]] it planned to seize as a result of the waging of [[aggressive war]]. When this pay-off does not materialize, the government is left with the [[debt]] of war without the ability to offset this [[government debt]] through the imposition of [[reparations]] on the defeated [[nation]] and the acquisition of the defeated state's [[resources]]. This occurred to [[Germany]] after the [[First World War]] and [[Japan]] after the [[Second World War]].

Whatever the trigger, the key warning sign of any impending monetary crisis and economic [[anarchy]] is a sudden [[currency crisis]], or a sudden spike in domestic interest rates, or a sudden [[credit crunch]].<ref>[http://www.goldensextant.com/SavingtheSystem.html Fiat's Reprieve, by Robert K. Landis]</ref> Early warning signs that the [[private banks]] themselves are aware of an impending breakdown in the [[solvency]] of the [[financial system]] would be: a spike in the prices for [[oil]] (which is an internationally accepted, inherently limited, store of value, and therefore can act as a modern form of [[hard currency]], oil sometimes being referred to as "black gold"), [[gold]], [[silver]] and other stable, non-perishable, inherently limited [[natural resources]] essential for non-discretionary industrial production;<ref>[http://www.marketoracle.co.uk/Article25313.html Asset Speculation and Capital Destruction], Jim Willie</ref> a spike in the [[futures contract]]s for vital agricultural [[commodities]]<ref>January 27, 2011 – ''Financial Times'' (Javier Blas and Chris Giles): “Governments across the developing world are stockpiling food staples in an attempt to contain panic buying, inflation and social unrest. But the hoarding is driving agricultural commodity prices even higher. The cost of wheat, the world’s most important staple, reached a fresh two-and-a-half-year high on Thursday, after countries from Algeria to Saudi Arabia announced extraordinary purchases. High food prices have been a contributing factor to the recent wave of social unrest across North Africa and the Middle East. In Algeria earlier this month, young rioters chanted ‘Bring us sugar!’ The cost of the sweetener in the wholesale market is at its highest in 30 years. Earlier this week, Algeria bought 800,000 tonnes of wheat – much more than usual – and Saudi Arabia announced plans to double the size of its wheat stockpile. Bangladesh and Indonesia joined the rush on Thursday, placing extraordinary on rice orders.”</ref> such as [[sugar]],<ref>[http://www.bloomberg.com/news/2010-12-15/portugal-tries-to-prevent-sugar-hoarding-amid-shortage-ft-says.html 2010 Portugal Sugar Crisis]</ref> [[coffee]], [[wheat]], [[soybean]]s and [[rice]], as investors realize the debt-based monetary system has squeezed supplies of [[arable land]]; a sudden flight of money ''to'' [[Treasury bills]] and/or a sudden spike in the [[interest rate]] differential between short-term [[Treasury bills]] and asset-backed corporate paper (or a sudden spike in the [[LIBOR]] rate in [[London]])<ref>[http://www.goldensextant.com/SavingtheSystem.html Fiat's Reprieve, by Robert K. Landis]</ref><ref>[http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/12/03/cnrates103.xml&CMP=ILC-mostviewedbox Pleas for rate cut as interbank loans dive]</ref> - and then, in the very late stages of a credit crisis, a sudden and disorderly flight of money ''away from'' government bonds and a "shock" or "panic" collapse in government bond prices, as banks perceive that some governments will ultimately find it ''impossible'' to pay interest on their debt from coercively acquired taxes.<ref>[http://www.telegraph.co.uk/finance/economics/8190059/Global-bond-rout-deepens-on-US-fiscal-worries.html Global bond rout], Ambrose Evans-Pritchard, UK Telegraph</ref><ref>[http://www.prudentbear.com/index.php/thebearslairview?art_id=10480 When Will The U.S. Become Greece?], Michael Hutchinson</ref>

Shortly thereafter, some [[monetary reform]]ers predict that there would be desperate, but ultimately futile [[central bank]] intervention, a [[currency crisis]], a panic run on a number of marginal, [[insolvent]] [[banks]] and [[hedge funds]] as desperate wealthy investors try to get [[cash]] out before the [[pyramid scheme]] collapses to invest in inherently limited, non-perishable, in-demand commodities such as [[oil]] and [[gold]]<ref>[http://www.marketoracle.co.uk/Article25313.html Asset Speculation and Capital Destruction], Jim Willie</ref> (and undeveloped agricultural and industrial [[land]] in areas of the world with strong [[economic growth]]), followed by a [[recession]] or [[depression]] in the broader heavily indebted economy as the [[money supply]] contracts.<ref>[http://www.goldensextant.com/SavingtheSystem.html Fiat's Reprieve, by Robert K. Landis]</ref><ref>[http://www.marketoracle.co.uk/Article25313.html Asset Speculation and Capital Destruction], Jim Willie</ref><ref>[http://www.newyorkfed.org/research/staff_reports/sr291.pdf Hedge Funds, Financial Intermediation and Systemic Risk]</ref>

In 2010 Ireland and Greece experienced simiilar financial crises along the lines described above and many financial commentators and politicians expect more countries to go through the same debt crisis.<ref>[http://globaleconomicanalysis.blogspot.com/2010/12/video-fire-bombs-stones-fly-in-greek.html Greek protests]</ref><ref>[http://www.youtube.com/watch?v=2gm9q8uabTs "Who the Hell do you think you people are?"], Nigel Farage, UKIP leader</ref><ref>[http://www.marketoracle.co.uk/Article25313.html Asset Speculation and Capital Destruction], Jim Willie</ref> In 2011, Tunisia experienced a financial and political crisis that was almost identical to those already experienced on the poorer European periphery, except that in this case the pre-existing political establishment quickly fled the country in fear for their safety - with some allegations that the wife of the deposed leader, Leila Trabelsi, ordered the country's central bank to transfer 1.5 tonnes of [[gold]] to Zine El Abidine Ben Ali and his family.<ref>[http://www.marketoracle.co.uk/Article25636.html We are all Tunisians], Yvonne Ridley</ref><ref>[http://www.heraldsun.com.au/news/breaking-news/tunisia-missing-15-tonnes-of-gold/story-e6frf7jx-1225992107457 Tunisia missing 1.5 tonnes of gold], Herald Sun</ref> Following the overthrow of the ruling elites in Tunisia, other North African countries have experienced similar uprisings - all attributable to higher food prices, according to some noted commentators, who have accused Fed Chairman Ben Bernanke of literally having "blood on his hands" due to the encouragement of food price inflation via sustained inflationary loose-monetary policies.<ref>[http://globaleconomicanalysis.blogspot.com/2011/01/blood-on-bernankes-hands-riots-in-egypt.html Blood on Bernanke's Hands], MISH</ref>

Noted British ''Telegraph'' commentator Ambrose Evans-Pritchard has called these the first Malthusian "Food Revolutions" of the modern era, as agflation causes political instability on the periphery of major economies worldwide - particularly those countries that have already denuded their agricultural base and have to import grain and other foods to survive.<ref>[http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/8291470/Egypt-and-Tunisia-usher-in-the-new-era-of-global-food-revolutions.html A New Era of Food Revolutions], Ambrose Evans-Pritchard</ref>

It is also reported that very complex, delicate negotiations are taking place between debtor and creditor nations to swap government bonds with gold at prices far in excess of the declared "market price" of gold.<ref>[http://www.marketoracle.co.uk/Article25878.html China Buys European Gold], Jim Willie</ref> These so-called "off-market" deals are a sign the Keynesian Endpoint has arrived.<ref>[http://www.marketoracle.co.uk/Article25878.html China Buys European Gold], Jim Willie</ref>

===Potential solutions===
Although time is the only real remedy for monetary crises (allowing re-inflation of the markets through the gradual injection of new [[debt money]] into the system through new borrowings), time is something panicked financiers and investors are least likely to want to give up when the threat is never getting their [[money]] out of the imploding investment [[bubble]]. In extreme cases [[bank]]s could set up "independent" corporate investment vehicles to buy the assets associated with the [[bad debt]],<ref>[http://www.dealbreaker.com/2007/10/citigroup_looks_to_lend_money.php Citigroup looks to lend money]</ref> thereby allowing [[borrower]]s to liquidate their investments and allow time for the markets to re-inflate. Alternatively, these "sour" loans, that have gone bad through too much debt overwhelming the markets, could be dumped or "hidden" on the central bank's balance sheet, and swapped for more secure government debt (financed through compulsorily acquired taxes, which are immune from the risk of private bankruptcy). However the holding costs involved in these measures would be extremely high and would not guarantee that the losses could be averted if no new gullible investors could be found to offload these distressed assets.<ref>[http://www.youtube.com/watch?v=n8w6Nx2rfiE A Wikileaks for the Fed?]</ref> More fundamentally, these short-term "parachutes" used after bubbles burst do not save ordinary borrowers from [[foreclosure]] and [[bankruptcy]], nor do they address the pernicious long-term dysfunctional aspects of [[fractional reserve banking]] described above. These problems are temporarily averted, only to be dealt with yet again by the next generation of indebted governments and peoples.<ref>[http://www.informationclearinghouse.info/article18431.htm The Era of Global Financial Instability, by Mike Whitney]</ref><ref>[http://www.youtube.com/watch?v=n8w6Nx2rfiE A Wikileaks for the Fed?]</ref>

Given these repeated financial crises arising from the debt-based monetary system, many [[monetary reform]]ers predict that there will inevitably be a spontaneous market-induced return to the [[gold standard]],<ref>[http://www.youtube.com/watch?v=VMngK0t5WkY Mike Maloney interview with Max Keiser], The Keiser Report</ref> a fundamental change in the way money is produced and distributed (with a return to the prevalence of government-issued debt-free [[fiat currency]] and/or [[free banking]]) - or a complete financial "[[meltdown]]" as fewer young people in developed economies can be found who are willing to go into debt in sufficient magnitude to pay off the debts that have already been accumulated.<ref>[http://www.goldensextant.com/SavingtheSystem.html Saving the System, by Robert K. Landis]</ref> As extreme inequality increases, [[foreclosure]]s mount and financial crises repeatedly erupt, these [[monetary reform]]ers believe a political crisis will eventually result in calls for fundamental [[monetary reform]].

These on-going, worsening, [[debt]]-created crises in the economy and society (and the unsustainable damage to the [[environment]] caused by debt-created [[overconsumption]]) could turn monetary and economic policies either to the extreme left or to the extreme right, as there are a number of competing solutions to the debt-based monetary "problem".

===Proposals for monetary reform===
====Libertarians, Austrians and commodity money====

[[Libertarians]] and [[Austrian School]] advocates envision a society of [[free markets]], [[free banking]], [[small government]]<ref>[http://www.prudentbear.com/index.php/thebearslairview?art_id=10473 Models of Capitalism], Michael Hutchinson</ref> and the abolition of [[legal tender laws]], allowing money backed by a free market [[gold standard]] or [[silver standard]] to come back in circulation,<ref>[http://www.marketoracle.co.uk/Article25212.html The Faults of FRB], Thorsten Polleit</ref> along with the abolition of all monopolistic governmental central economic planning and monopolistic central banking.<ref>[http://www.lewrockwell.com/blog/lewrw/archives/73833.html End the Fed], Freedom Watch</ref><ref>[http://mises.org/daily/4860 Money: Sound and Unsound], Mark Thornton commentary on Joseph Salerno's book</ref><ref>[http://www.prudentbear.com/index.php/thebearslairview?art_id=10471 Gold Standard Renaissance?]</ref><ref>[http://www.marketoracle.co.uk/Article24632.html The Gold Standard Never Dies], [[Lew Rockwell]]</ref><ref>[http://www.prudentbear.com/index.php/thebearslairview?art_id=10471 Gold Standard], Michael Hutchinson</ref><ref>[http://mises.org/store/Money-Bank-Credit-and-Economic-Cycles-P290C0.aspx Money, Bank Credit and Economic Cycles], Jesus Huerta de Soto, Mises Institute ISBN: 978-1-933550-39-8</ref><ref>[http://radio.goldseek.com/griffin04.10.10.php Goldseek interview] with [[G. Edward Griffin]]</ref><ref>See also these [[Murray Rothbard]] articles: [http://www.mises.org/money.asp What Has Government Done to Our Money?], [http://www.mises.org/story/1829 The Case for the 100% Gold Dollar]; [http://www.lewrockwell.com/rothbard/cartelization.pdf The Fed as Cartel], [http://www.lewrockwell.com/rothbard/rothbard191.html Private Coinage], [http://www.lewrockwell.com/rothbard/rothbard190.html Repudiate the National Debt]; [http://www.lewrockwell.com/rothbard/rothbard181.html Taking Money Back], [http://www.lewrockwell.com/rothbard/rothbard163.html Anatomy of the Bank Run], [http://www.lewrockwell.com/rothbard/rothbard128.html Money and the Individual]</ref> Some Libertarians would also support experimentation with [[full-reserve banking]],<ref>[http://mises.org/daily/4860 Money: Sound and Unsound], Mark Thornton commentary on Joseph Salerno's book</ref><ref>[http://mises.org/store/Money-Bank-Credit-and-Economic-Cycles-P290C0.aspx Money, Bank Credit and Economic Cycles], Jesus Huerta de Soto, Mises Institute ISBN: 978-1-933550-39-8</ref><ref>[http://www.mises.org/Books/mysteryofbanking.pdf Murray Rothbard, ''The Mystery of Banking'']</ref> recognizing that when fractional-reserve banking is combined with the gold standard a deflationary bias (and the systematic transfer of real wealth to the banking system) is normally inevitable. Those Libertarians who support full reserve banking would strongly support more flexible and forgiving bankruptcy laws in a fractional reserve banking environment, recognizing that no [[social stigma|stigma]] should be attached to bankruptcy given the anti-Libertarian "unjust acquisition" of real wealth implicit in both fractional reserve banking and [[taxation]].<ref>[http://mises.org/daily/4860 Money: Sound and Unsound], Mark Thornton commentary on Joseph Salerno's book</ref><ref name="Repudiating the National Debt">[http://mises.org/article.aspx?Id=1423 Repudiating the National Debt], Murray Rothbard</ref><ref>[http://www.mises.org/Books/mysteryofbanking.pdf Murray Rothbard, ''The Mystery of Banking'']</ref><ref>[http://gonzalolira.blogspot.com/2010/12/want-to-ruin-your-own-country-assume.html Want to Ruin Your Country?]</ref>

Regarding the current accumulation of [[government bonds]] and private debt, some Libertarians believe that the creation of the [[Federal Reserve System|Federal Reserve]] under the [[Federal Reserve Act]] of 1913 was [[Criticism of the Federal Reserve|unconstitutional]] and some Libertarians consider that at least some of this accumulated debt should be canceled or forgiven prior to a return to the gold standard in recognition of its fundamental illegitimacy.<ref name="Repudiating the National Debt"/> Arguably this would be supported by the "just acquisition" [[jurisprudence]] of legal philosopher [[Robert Nozick]] and Libertarian advocate [[Murray Rothbard]].<ref name="Repudiating the National Debt"/>

In late 2010, financial commentator Max Keiser started the [[Buy Silver Crash JP Morgan Campaign 2010]] in an attempt to expose the flaws underlying the [[fractional reserve banking]] system.

====Reform within fiat currency systems====
[[Stephen Zarlenga]] of the American Monetary Institute and [[Ellen Hodgson Brown]] call for the nationalization of the private banking system once the full losses on the banks' portfolios are recognized.<ref>[http://www.webofdebt.com/articles/new_theory.php Time for a New Theory of Money]</ref><ref>[http://globaleconomicanalysis.blogspot.com/2011/01/steve-keen-responds-to-world-economic.html Exponential Growth], MISH</ref><ref>[http://www.webofdebt.com/articles/force_nationalization.php Foreclosuregate could force bank nationalization]</ref><ref>[http://webofdebt.wordpress.com/2010/12/22/austerity-fails-in-euroland-time-for-some-%e2%80%9cdeficit-easing%e2%80%9d/ Austerity Fails in Europe], Ellen Hodgson Brown</ref> Brown also supports "QE2" - which she describes as a necessary and desirable funding of government spending via money printing rather than by the indirect means of issuing of interest-bearing government bonds, which simply allows private bankers to profit from costless money creation.<ref>[http://www.marketoracle.co.uk/Article24443.html QE2 and the Looming Threat of a Crippling Debt Service]</ref><ref>[http://www.marketoracle.co.uk/Article24719.html QE2 and Hyperinflation], Ellen Hodgson Brown</ref> In late 2010, [[Ellen Hodgson Brown]] and Austrian School commentator [[Gary North]] engaged in an intense debate over the direction of [[monetary reform]], with gold-standard supporter [[Gary North]] accusing Brown of going down a path that inevitably leads to the economics of fascism.<ref>[http://www.lewrockwell.com/north/north908.html Criticism of Ellen Hodgson Brown]</ref><ref>[http://www.lewrockwell.com/north/north912.html Ellen Betrays], Gary North</ref>

[[Michael Rowbotham]] also seeks the cancellation of "unjust" debts (such as [[third world debt]]), but would also support the re-introduction of strongly redistributive tax policies involving higher financial transaction taxes (such as a [[Tobin tax]]), [[land tax]]es and [[inheritance tax]]es, and, crucially and most importantly, a [[social security]] [[safety net]] involving a guaranteed minimum [[social credit|debt-free income]] (sourced from government-issued debt-free money independent of any central bank) for all citizens in the debt-based economy. Under this proposal, every adult citizen would be given a livable debt-free income transferred electronically into their [[bank account]], simply by virtue of their [[citizen]]ship. They could then use this debt-free money to pay off their [[mortgage]]s or to live, debt-free, without being compelled to work as a [[wage slavery|wage slave]] in the market economy if they chose not to. The government would finance these payments simply by ordering the private banks to accept their electronic instructions as legal tender. It would therefore not result in the expansion of [[government debt]].

Instead of [[money]] being created "indirectly" and "furtively" at the point of [[loan]] creation by the private banking system, with periodic [[bailouts]] to [[socialism for the rich and capitalism for the poor|already-rich bankers]], it would be created directly and openly by the democratically elected government and issued to its [[citizen]]ry by way of instruction to the private banking system.

Rowbotham and Ellen Hodgson Brown both argue in their books that this would ''not'' be [[inflation]]ary (or at least would not be as inflationary or as dysfunctional as the present system).<ref>[http://www.webofdebt.com/articles/hyperinflation.php Weimar Hyperinflation], Ellen Hodgson Brown</ref> This would also reduce [[overconsumption]] and the associated [[Natural environment|environment]]al damage associated with debt-based [[consumerism]]. It would also give individuals the free time to engage once again in non-marketable [[religious]], [[artistic]] and [[recreation]]al activities if they chose to do so.<ref name="death"/>

Ex-U.S. Treasury Department analyst Richard C. Cook also supports the issuance of debt-free money and zero-interest credit by the central government and has provided a detailed blueprint of monetary reform recommendations to transition to a debt-free money supply.<ref name="marketoracle.co.uk"/>

Many monetary reformers who call on the government to take back the money creation from debt-sourced banks also call for full reserve banking to remove the bank's alleged "embezzlement" and "counterfeiting" abilities.<ref name="marketoracle.co.uk"/><ref>[http://www.monetary.org/ AMI website, calling on full-reserve banking]</ref>

It is to be expected that these policies would be violently opposed by the [[private bank]]ing "[[elite]]", as it would render impotent their control over the [[money supply]], dissipating this crucial decision-making power away from its current power base. It would also be likely to reduce [[economic growth]], dramatically increase the cost of [[labor]] and, potentially, simply increase monetary and price inflation as individuals used the additional income to bid up the cost of health care, education, housing, food and other real assets.<ref>[http://www.marketoracle.co.uk/Article25175.html Kucinich's End the Fed campaign fatally flawed], MISH</ref> <ref>[http://webofdebt.wordpress.com/questions-and-answers/response-to-mogambo-guru/ Response to the Magambo Guru], by Ellen Hodgson Brown</ref> However, this proposal would undoubtedly address the problem of [[inequality]] inherent in a debt-based monetary system and reduce the devastating impact of personal [[bankruptcy]] and allow individual citizens to quickly recover from financial hardship. It would also ensure that this [[social security]] measure (and government spending in general) would not have to be paid for by future generations from future streams of [[income tax]].

===Left-leaning ideas===
Many left-leaning [[social democrats]] would also support the taxing of the banking system and the enforcement of strongly redistributive income and [[land tax]]es to ensure the financially dispossessed are "replenished" with income. They would also support a [[social security]] [[safety net]] involving the provision of unemployment benefits and government-supplied free medical care, education and other essential services and [[public goods]]. It is to be expected however that, without the issuance of debt-free [[fiat currency]], this system would result in the persistent, exponential, accumulation of [[government debt]], financed by the [[private banking]] system by the issuance of [[government bonds]]. If not properly managed, this could result in a progressively higher tax burden and may result in higher [[interest rates]] in the long term, as financiers require higher [[interest rates]] to lend to the increasingly indebted central government. Without the issuance of [[debt-free money]] these policies can be self-defeating, with the net result simply being that a larger stream of guaranteed income goes to the [[private bank]]ing system via the issuance of interest-bearing [[government bonds]] (which are purchased by the [[private banks]] "out of nothing" through [[fractional reserve banking]] techniques). This [[government debt]] must then be financed in perpetuity by compulsorily acquired [[tax]]es from future generations.

It could be argued that the early success of extreme right-wing [[fascism]] in [[Nazi Germany]] and [[Italy]] in the period after [[World War I]] was a response to the economic chaos created by the debt-based monetary system in early 20th century [[Europe]]. Some of the economic policies introduced by [[Hitler]] and [[Mussolini]] were in direct response to the economic collapse and social [[anarchy]] caused by soaring government and personal debt levels in both countries in the post-[[Versailles Treaty]] era, and (indirectly) arose from the writings of [[Silvio Gesell]] and others on the nature of the problems associated with a debt-based [[monetary system]]. Although many [[historian]]s justifiably criticize many of the non-economic policies of the [[fascist]] governments of [[Germany]] and [[Italy]] during this period, it cannot seriously be disputed that the [[economics of fascism]] provided a degree of [[prosperity]] to the populace, and that the economic policies that were implemented during this period by these [[fascist]] governments succeeded in their stated objective of restoring economic and social order during the pre-[[World War II]] era.<ref>[http://www.webofdebt.com/articles/bankrupt-germany.php How a Bankrupt Germany Solved its Economic Problems], Ellen Hodgson Brown</ref>

Similarly it could be argued that [[socialism]] and [[communism]] were movements inspired by the inequalities caused by the intense (and in [[Karl Marx]]'s view unsustainable) concentrations of monetary wealth, power and influence inherent in the practice of [[fractional reserve banking]] in a [[laissez-faire]], [[free market]] [[capitalist]] environment (particularly when [[fractional reserve banking]] is combined with a [[gold standard]] or other [[hard currency]] [[monetary system]]).<ref>[http://www.nakedcapitalism.com/2009/02/steve-keen-roving-cavaliers-of-credit.html ''Roving Cavaliers of Credit'', Steve Keen, with commentary from Yves Smith at Naked Capitalism]</ref>

The [[communist]]/[[socialist]] solution to the problem of [[fractional reserve banking]] is simple: complete removal (and if necessary, violent non-democratic removal) of the allegedly "parasitic" political and financial capitalist class, wholesale repudiation of [[government debt]] resulting in complete debt [[default]]; forced [[expropriation]] of [[land]] and wealth from the [[upper classes]] to the dispossessed and needy [[working classes]]; [[nationalization]] of the [[private banks]] (which has required armed [[coup]]s by the [[military]] in some past [[revolution]]s); and the return of the banking function from a dominant, speculative to a subordinate, administrative institution, where the banking system is reduced to a subservient arm of the centralized [[Leviathan]]. In this system, government-owned banks are directed by government policy; often provide different kinds of loans to different industry sectors at different interest rates depending on the perceived "needs" of the economy and the community; normally have a significant proportion of [[non-performing loan]]s due to weak or non-existent [[bankruptcy]] laws; and periodically "forgive" failed debts in recognition of the impossibility of some businesses in paying this debt money back.

It is to be expected that the [[profitability]] of the government-owned banking system would be more stable - but dramatically lower - than that in a debt-based [[capitalist]] economy. It is also to be expected that a significantly higher misallocation of resources could occur in this system, where lending decisions are "infected" by political considerations and are not made on the basis of expected [[return on investment]]. The risk of [[corruption]] in the banking system is also expected to be higher where there is no separation between the political and monetary systems in an economy. Market-oriented [[monetary reform]]ers and [[neo-classical]] economists therefore do not support [[nationalization]] of the [[private banking]] system.

It should be noted that partial [[nationalization]] of the [[private bank]]ing system would only be temporary, as any remaining [[private banks]] could still engage in unlimited [[fractional reserve banking]] and facilitate the eventual acquisition and control of any strategic assets in a partially socialized economic system. It is to be expected that in the absence of complete [[nationalization]] of the banking system, the [[private bank]]ing system would eventually dominate the financial system in any nominally [[socialist]] society.

===Status under current systems===
Whatever their political leanings, nearly all [[monetary reform]]ers agree that the current mixture of policies prevalent in most Western democracies, involving the perpetuation of government-protected [[private bank]]s (organizations legally permitted to engage in unlimited and inherently speculative [[fractional reserve banking]] activities, with recourse to monopoly [[central bank]]s - and in some cases corrupt governments<ref>[http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100008812/irelands-debt-servitude/ Ireland's Debt Servitude], Ambrose Evans-Pritchard, UK Telegraph</ref> - to provide [[bail out]]s of [[fiat money]]), "deregulated" labor markets (which have the effect of increasing the marketization and commodification of human activity), strictly enforced [[bankruptcy]] laws (which permit the periodic transfer of assets from failed [[bankrupt]] investors to the [[private banks]] and their associates) and [[personal income tax]] (which, combined with periodic economic collapses, dispossesses the majority of the populace from their accumulated [[income]] and [[wealth]] and transfers this wealth to the owners of [[government bonds]]) amounts to an inherently unstable, unjust and dysfunctional [[economic system]] resulting in [[environment]]ally damaging [[over-consumption]], the systematic and irredeemable destruction of fertile [[arable land]] and the government-sponsored (and ultimately unsustainable) oppression of the indebted, impoverished and economically enslaved majority.<ref>[http://mises.org/daily/4893 ''The Ethics of Money Production''], Jorg Guido Hulsmann</ref>

==See also==
* [[Austrian Business Cycle Theory]]
* [[Central bank]]
* [[Monetary reform]]
* [[Murray Rothbard]]
* [[Ron Paul]]

==References==
{{reflist|2}}

==External links==
*[http://libertariannation.org/b/money.htm Libertarian Nation Foundation - Money and Banking]
*[http://econpapers.repec.org/paper/wpawuwpma/0203005.htm Fractional Reserve Banking as Economic Parasitism]
*[http://www.prosperityuk.com/prosperity/links/links.html Monetary Reform websites]
*[http://www.jamesrobertson.com/books.htm#creating James Robertson: Creating New Money: A Monetary Reform for the Information Age]
*[http://www.relfe.com/plus_5_.html I want the Earth Plus 5%]
*[http://video.google.com/videoplay?docid=-9050474362583451279 Money As Debt (videoplay animation)]
*[http://libertariannation.org/b/money.htm Money and Banking]
*[http://globaleconomicanalysis.blogspot.com/ MISH]
*[http://maxkeiser.com/ Max Keiser]
*[http://www.webofdebt.com/ Web of Debt]
*[http://www.prudentbear.com/ PrudentBear.com]
*[http://www.marketoracle.co.uk/ Market Oracle]
*[http://www.rgemonitor.com/index.php RGE Monitor]
*[http://www.financialarmageddon.com/ Financial Armageddon]
*[http://thedollarmeltdown.com/book.html The Dollar Meltdown]

{{DEFAULTSORT:Criticism Of Fractional-Reserve Banking}}
[[Category:Argumentation]]
[[Category:Money]]

Murphy-Krugman debate

2011-02-01T08:58:09Z

Ddnixx:

The '''Murphy-Krugman debate''' is a proposed debate between economists [[Robert Murphy]] and [[Paul Krugman]]. As of January 2011 the debate has not taken place.

==Overview==

Murphy issued the challenge to Krugman in October 2010. The debate will focus on the [[Austrian Business Cycle Theory]] versus the [[Keynesian Business Cycle Theory]]. In order to place pressure on Krugman to accept the challenge, Murphy organized a fundraiser to raise $100,000 for the Fresh Food Program in New York City. <ref>Robert Murphy, [http://mises.org/daily/4807 "My Debate Challenge to Paul Krugman"], ''Mises Daily'', Oct. 28, 2010</ref> The funds would only be sent if Krugman actually engaged in a debate with Murphy. As of January, 2011, over $60,000 have been raised, and there has been no response from Krugman.<ref>ThePoint Fundraising page [http://www.thepoint.com/campaigns/campaign-0-1240 Murphy-Krugman Debate]</ref> A website ([http://www.krugmandebate.com KrugmanDebate.com]) and several YouTube videos were created in order to spread the news about the debate.<ref>[http://www.youtube.com/watch?v=6cFXRFlvE3s Murphy-Krugman Debate v3] (video)</ref><ref>http://www.krugmandebate.com referenced 2011-02-01</ref>

Donations for the debate are currently accepted at [http://krugmandebate.com The Point].

In November 2010 [[Andrew Napolitano]], a political and legal analyst for Fox News Channel and former New Jersey Superior Court Judge, offered to host the debate on his TV show ''Freedom Watch''.<ref>[http://www.youtube.com/watch?v=xEYg-2d0EkA Heed the Judge] (video)</ref>

==External links==
* [http://www.krugmandebate.com KrugmanDebate.com]

==References==
{{Reflist}}
<references/>

[[Category:Argumentation]]
[[Category:Ideologies]]

Ayn Rand

2011-01-28T01:42:43Z

Ddnixx:

{{Wikipedia text}}
'''Ayn Rand''' (1905–1982) born Alisa Zinov'yevna Rosenbaum was a [[Russia|Russian]]-[[United States|American]] novelist and philosopher. She is most famous for her novels ''[[The Fountainhead]]'' (1943) and ''[[Atlas Shrugged]]'' (1957). Other literature attributed to her is '''We the Living''' (1936), '''Night of January 16th''' (1934), and '''Anthem''' (1938). Her non-fiction titles include '''For the New Intellectual''' (1961), '''The Virtue of Selfishness''' (1964), '''Capitalism: The Unkown Ideal''' (1966), '''The Romantic Manifesto''' (1969), '''The New Left: The Anti-Industrial Revolution''' (1971), '''Introduction to Objectivist Epistemology''' (1979), and '''Philosophy: Who Needs It''' (1982). She was a [[laissez-faire]] [[capitalist]], but refused to call herself a [[libertarianism|libertarian]], on the grounds that she didn't want to associate herself with [[Anarchism|anarchists]].

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{{DEFAULTSORT:Rand, Ayn}}
[[Category:Libertarians]]
[[Category:Novelists]]
[[Category:Philosophers]]

Hayekian triangle

2011-01-28T01:17:43Z

Ddnixx:

[[File:Hayekian triangle.jpg|right|thumb|Hayekian triangle|300px]]
The '''Hayekian triangle''' is a diagram first presented in [[Friedrich Hayek]]'s ''[[Prices and Production]]'' (1935) <ref>F. A. Hayek. [http://www.mises.org/books/pricesproduction.pdf "Prices and Production"] View page 39 for Hayek's presentation and exposition of the triangle.</ref> that organizes all spending in an [[economy]] in the shape of a triangle. It depicts [[production]] in stages, early (higher-order) to late (lower-order), ending with the final consumer good. [[Time]] is a significant factor and is represented vertically. In more recent replications and uses, the triangle has been turned 90 degrees counter-clockwise, so that time is represented horizontally, left to right.<ref>Roger Garrison. [http://www.auburn.edu/~garriro/cbm.htm "Chapter 9: The Austrian School: Capital-Based Macroeconomics"]</ref> This helps when juxtaposing the triangle's concept with other relevant diagrams, especially a production possibilities frontier of societal [[consumption]] and [[investment]].

Early stages of production include the very first processes involved in producing a good, such as mining, harvesting, and other ways to collect natural resources. Late stages include the "final touches", distribution, and putting the item on the shelf for sale, so to speak. The very bottom (or rightmost, depending on how the triangle is oriented) depicts consumption, or money spent on consumer goods.

The shape and size of the triangle depends on how an economy allocates resources in consumption and investment. Here, [[Interest|interest rates]] are key. If a society decreases current consumption and [[Savings|saves]] more, real interest rates are lowered. With lower interest rates, [[Entrepreneur|entrepreneur]]s have more incentive to invest in earlier stages of production for two reasons: (1) consumers are spending less on retail goods, and (2) lower interest rates mean entrepreneurs can [[Debt|borrow more money]], cheaper, for investment. This causes Hayek's triangle to expand vertically and become more narrow (in the original orientation), with the earlier stages receiving more funding and with less spending on the lowest-order goods. This primes the economy for even more opportunities for consumption in the future than was possible without the initial decrease in consumption that began the whole process. When this happens, the whole triangle becomes larger, with more opportunity to invest in production ''and'' spend on final goods.

If, however, the ''opposite'' occurs, and consumers increase spending on the final, lower-order goods, and society saves ''less'', then interest rates are increased and less investment occurs in the earlier stages of production. This causes the triangle to become shorter and fatter, with fewer resources going toward production and more resources going toward consumption. A society that engages in this tradeoff sacrifices current investment and future consumption.

The triangle is distorted when interest rates are controlled by a [[central bank]]. A central bank can put downward pressure on interest rates by increasing the [[money supply]] whether or not society is saving more and consuming less. When this happens, the triangle loses its straight hypotenuse. Early stages of production expand, making the diagram taller, and the bottom of the diagram (consumption) also increases in size. This [[Malinvestment|distortion in the economy]] is represented by a distorted hypotenuse (usually depicted as bowing inward), instead of an overall increase in the size of the triangle. This major societal [[malinvestment]] eventually causes the whole triangle to shrink, because resources were not being allocated through a real, market-dictated interest rate and society as a whole is now less able to save and less able to spend. This is, in essence, the basis of [[Austrian Business Cycle Theory]]. The Hayekian triangle therefore helps depict the main components of ABCT.

==See also==
* [[Austrian Business Cycle Theory]]
* [[Capital]]

==References==
{{reflist}}

[[Category:Economic concepts]]

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